QUITE EXPECTEDLY, THE Finance Minister, Mr P. Chidambaram, has offered a few sops while replying to the debate in the Lok Sabha on the Finance Bill but has otherwise stuck largely to the original script. One could discern the hand of the Prime Minister in the actual unfolding of events as rarely could a controversial proposal such as the cash withdrawal tax have been pushed through without the political signal from the very top. But no matter, it must be said that the administration has demonstrated considerable tactical acumen in outplaying the traditional politician in their opposition to the above tax proposal.

Witness the manner in which the Government allowed the traditional political class to milk the `common man' theme for all it was worth in the context of opposing the levy right from the time the proposal was announced in the Budget and leading all the way up to the date of replying to the debate. The stage was, thus, set for turning the tables on them by announcing that the levy would be imposed neither on savings bank account transactions nor on withdrawals from current accounts of small denominations. Having taken the `common man' argument all this while these politicians cannot very well turn to some other principled objection of macroeconomic policy to mount an opposition and must thus be reconciled to this levy becoming a feature of the tax structure. The examples of huge cash withdrawals with ostensibly no business purpose that the Finance Minister referred to in his reply, would seem to suggest prima facie, evasion and, worse, a source of illegitimate income as well.

On the `fringe benefit tax' too there has been some minor tinkering but the structure itself is essentially in tact. The corporate sector would not be entirely happy but, as in the past, would learn to accept it. The term `fringe benefit' is actually a misnomer as it suggests that employees are in some way partaking of the benefit of such payouts listed in the Bill. If they are involved at all it must be at the periphery, as a corporate entity cannot get on with its business except through the medium of its own employees. For instance, it would be a company's own employee who entertains the purchase officer of a customer firm to dinner, but is there any personal benefit involved in the arrangement?

No doubt, companies to a certain extent camouflage employee benefits as business expenditure. But the fault lies in a tax structure that is replete with all manner of incentives and concessions that bring down a company's average tax rate. It is easy to see that when the corporate tax rate and the maximum marginal personal income-tax rate is identical (30 per cent now) the incentive to treat employee benefits as a business expenditure disappears. Rather than resorting to the `fringe benefit tax', which distorts the essential character of a tax on corporate incomes, the Government would have been better off dismantling a tax structure laden with incentives and concessions, as the Kelkar Committee had recommended earlier.

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