Finance minister P Chidambaram?s tax opera seems to have come a full circle. His decision to levy a tax on transactions in commodity exchanges in Budget 2008-09 has surprisingly not found much opposition. The silence this time around is in stark contrast to the Budgets of 2004 and 2005, when there was heavy opposition and protest to the securities transaction tax (STT), fringe benefit tax (FBT) and banking cash transaction tax (BCTT) which were introduced by Chidambaram in those two consecutive years.
The Union Budget 2008-09, Chidambaram last full-Budget under the UPA government has brought about changes to all the three taxes that he introduced during his first two Budgets under the same government. He has tweaked the STT structure, giving some joy to the options market while making the tax more expensive for traders. He has also managed to give minor reprieve to India Inc by exempting some items from the FBT net. The most surprising, however, was his decision to withdraw BCTT, which as he pointed out has outlived its utility.
This is also reflected in the meager amount collected by the government from the tax. The government expects to collect Rs 550 crore from BCTT in 2007-08 as compared to Rs 645 crore in 2006-07. In 2008-09 also collections from the tax are expected to remain static at Rs 550 crore.
Meanwhile as a pointer towards the expected rise in trading in the stock markets and India Inc?s growth story, the government estimates that revenue from STT and BCTT will continue to rise.
Collections from both the taxes are expected to rise by 20% in the coming fiscal. STT revenues are likely to increase to Rs 9,000 crore in 2008-09 from Rs 7,500 crore in 2007-08. The government meanwhile expects to earn Rs 8,160 crore from FBT in the new fiscal as compared to Rs 6,800 in this fiscal.
STT was introduced by Chidambaram in 2004 as a tax on transactions in securities entered into in recognised stock exchanges in India. FBT and BCTT were introduced in 2005. While the objective of FBT was to tax those perquisites that are disguised as fringe benefits and so escape tax, the BCTT was levied at the rate of 0.1% on cash transactions exceeding Rs 50,000 by individuals and Rs 1 lakh by others in a day. Its objective was to keep a track of large transactions.