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Ministry makes case to free exporters from FBT, BCTT
January, 27th 2007

The ministry of commerce & industry has locked horns with the finance ministry in an attempt to convince it to do away with the fringe benefit tax (FBT) and banking cash transaction tax (BCTT) on exporters. While the revenue department does not seem to be willing to oblige, the commerce & industry ministry is keeping up the pressure with the hope of a breakthrough in the 2007 Budget. A number of follow-up letters which question the arguments given by the finance ministry against revoking the taxes have been sent to North Block, government sources said.

The commerce department has also made a case for reduction of Customs duty on filter, paper, craft and tissue paper used by tea exporters to give a boost to value-added tea manufacturers. Most of the proposals have been under discussion and the commerce & industry ministry has emphasised that they should be reconsidered.

In its suggestions submitted to the finance ministry for Union Budget 2007, the commerce & industry ministry has pointed out that the impact of FBT on exporters after the rationalisation and simplification of the tax in Budget 2006 was only marginal and didnt help the cause of exporters. The revenue department, in its response, maintained that FBT never had any adverse effect on exporters as it is not a tax on expenditure incurred by the employer and the burden of the tax ultimately falls on the employees through a process of shifting of the tax.

In a follow-up letter to the revenue department, the commerce department retorted that it was incorrect to assume that the burden of the FBT ultimately was transferred to the employees. Any increase in tax on the employees would lead to demand of increase of pay by the employee and the ultimate burden on the employer will be translated in the profits and loss accounts of the company. Ultimately, the burden will be adjusted in the pricing of goods making it internationally incompetitive.

The commerce department also challenged the imposition of baking cash transaction tax retention (BCTT) with it is argument that it was not clear how levying of tax on cash w i t h - d r a w a l s   w a s mandatory to track flow of cash. Even without such taxes, all bank statements revealed and would continue to reveal cash withdrawal from a particular bank account, it said.

On the revenue departments refusal to reduce duties on filter, paper, craft and tissue paper used by tea exporters on the ground that the country was moving away from end-use based exemption, the commerce department said that exporters of Indian tea were facing problems as the quality of indigenous material was not at part with international standard. The concession will encourage the value added tea manufacturers to improve production base and in marketing.

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