Reintroducing the fringe benefits tax (FBT) and banking cash transaction tax (BCTT), as recommended by the Parthasarathi Shome committee, could prove a good source of additional revenue for the government but might not go down well with individuals and companies, especially at a time when the economy is facing a slowdown.

In its third report, the Tax Administration Reform Commission (Tarc) has said bringing back FBT will be an effective measure to widen the direct tax base, and BCTT should be reinstated as an effective administrative measure to check flow of unaccounted money. Experts, however, argue that such taxes would unnecessarily increase the compliance burden on companies and banks, and their reintroduction could prove a regressive measure. “At this point, we should not experiment with a new concept. Let the economy stabilise first,” said Rahul Mitra, leader (direct tax), PricewaterhouseCoopers. “I am not saying you completely discard it, but we should not introduce it in a hurry.”

Mitra said even Tarc had stressed on evaluating the impact of any compliance cost on taxpayers and that the focus should be on collecting information through technology, instead of creating sudden distractions for taxpayers.

Divya Baweja, senior director, Deloitte, said: “When BCTT was introduced the previous time, it did not generate much revenue. In case of FBT, a lot of business expenses got taxed. The tax department should be more specific if they have to reintroduce these. Such taxes could lead to additional tax compliance. It may not be the right time to bring those back.”

The Tarc report has said FBT is a good temporary administrative measure for enhancing tax collection till rising income-tax collections make it unnecessary. FBT, introduced as part of the Finance Act, 2005, as an additional income-tax, came into force from April 1, 2005. In the first year, about Rs 4,000 crore was collected under this head. However, legislators and government officials were out of the purview of FBT. The Finance Act, 2009, abolished FBT with effect from assessment year 2010-11. “... a good tax that had the potential to reduce tax evasion and collected Rs 6,000 crore annually in revenue had to be abolished due to lack of horizontal equity and commensurate pressure from powerful lobbies who paid FBT,” Tarc said.

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Making a case for reinstating BCTT, Tarc said there was no instrument that captured details of cash withdrawals from bank accounts, other than savings accounts. The availability of such information would help the I-T department widen its information base on the use of black money. Experts said bringing banking cash withdrawals under the annual information returns would be a better idea than levying BCTT.

BCTT was introduced with effect from June 1, 2005, to track unaccounted money and trace its source and destination. It remained on the statute book for about four years and was withdrawn with effect from April 1, 2009. BCTT was levied in respect of cash withdrawals exceeding Rs 50,000 in the case of individuals and Rs 1,00,000 in the case of other persons, from their bank accounts other than savings accounts, in a day.

While withdrawing the levy, P Chidambaram, the then finance minister had said in his Budget speech: “BCTT has served a very useful purpose in enlarging the information system of the income-tax department. Since the information is also being gathered through other instruments introduced in the past few years, I propose to withdraw this tax with effect from April 1, 2009.”