'Fringe benefit tax not to cover biz expense'

Chidambaram willing to consider new scheme to track black money.

Finance Minister P Chidambaram today said genuine business expenditure would not be brought under the fringe benefit tax proposed in the Budget for 2005-06. "Legitimate expenditure is not fringe benefit. We intend to tax fringe benefits, not legitimate business expenditure," he said in an interview here.

However, the finance minister did not say what items listed in the Finance Bill for the fringe benefit tax would be reviewed.

The proposal to levy a fringe benefit tax has caused much anxiety among corporates as it lists expenditure items like travel, conferences, telephone calls and publicity liable to be taxed.

Companies in the fast-moving consumer goods sector, information technology and pharmaceutical sectors, which spend large sums of money on travel and publicity, are expected to be hit particularly hard by the move.

When asked how much he was planning to collect by way of the tax, Chidambaram said it would depend on how much the companies decided to load the fringe benefits on the salaries of their employees.

"It depends on how industry responds to this. If many of them repackage the perks as salary, then it will come as tax on income. It all depends on how salaries will be packaged," he said.

Chidambaram also said the tax of 0.1 per cent on all cash withdrawals of Rs 10,000 and above from banks was not a measure aimed at generating additional revenue for the government but a new system to track black money.

"The intention is not to tax but to track," he said, adding if a better mechanism was devised to unearth black money, he could look at it.

Talking about the reduction in the rate of depreciation, Chidambaram said the internal accruals to a company would remain the same; only the period would be stretched from four years earlier to five years now.

The finance minister said the National Common Minimum Programme initiatives of the government would be funded out of the government's revenue expenditure. As a result, while the government's revenue expenditure is up from Rs 386,000 crore to Rs 446,000 crore, the capital expenditure has come down from Rs 119,000 crore to Rs 67,000 crore.

When asked if he could meet the target of bringing the fiscal deficit down to zero over the next three years from 2.7 per cent now, Chidambaram said the government was on course to achieving the target.

"There is no slippage now. If we realise by 2008-09 that we are not going to be there, we will go back to Parliament and explain why there is a slippage," he said.