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Stage set to clean up irritant taxes

The stage has been set for the UPA government to introduce a new set of tax reform initiatives including the possible phasing out of the fringe benefit tax (FBT) and the securities transaction tax (STT). HT Correspondent reports.

business Updated: Jul 02, 2009 23:06 IST

The stage has been set for the UPA government to introduce a new set of tax reform initiatives including the possible phasing out of the fringe benefit tax (FBT) and the securities transaction tax (STT).

The Economic Survey for 2008-09, tabled in Parliament on Thursday ahead of the Union Budget next week, asked the government to phase out all cess levies and surcharges on taxes besides the STT and FBT and also introduce a new income tax code.

“Review and phasing out of surcharges, cesses and transaction taxes (such as STT and FBT). Incentivise states to do the same with respect to stamp duties,” the survey noted in a set of possible tasks ahead.

“The government might do away with fringe benefit tax (FBT), cess and surcharge on corporate taxes and replace it with single tax rate of 34 per cent. It may also remove securities transaction tax (STT) to bring down trading cost and increase volumes,” said Vikram Kotak, CIO Birla Sunlife Insurance, echoing the hopes of industry.

The survey also called for rationalising the dividend distribution tax (DDT) to ensure that dividends are taxed in the hands of receivers and not by firms.

Industry has been demanding a restructuring of the DDT arguing that in its current form it results in double taxation.

FBT, which was introduced in 2005-06, is imposed on perquisites and fringe benefits with the incidence of tax lying at the hands of the employer.

FBT has added about Rs 8,000 crore to central tax revenues in 2008-09.

“The budget may also offer FBT exemption to exporters and SMEs (small and medium enterprises). The government, however, needs to be mindful of the tax revenue loss; it must identify alternate revenue mechanisms. Its ballooning budget deficit needs to be kept in check,” said Manoj Vohra, Director of Research and Senior Editor, Economist Intelligence Unit.