The stage is set for big-ticket reforms in the tax structure with the focus on simplicity. The era of a number of taxes such as fringe benefit tax, commodities transaction tax, securities transaction and surcharge and cesses may be over, going by the agenda outlined by the Economic Survey.
The survey has recommended a review and phasing out of these taxes, which have irked taxpayers since the time they were introduced.
FBT, which is a kind of presumptive tax under which some of the benefits given by employer to the employee are deemed as given, remains highly unpopular with the industry.
Indeed, many leading economic experts who have vehemently opposed it.
Same is the case with STT, the surcharge on income tax and the education and higher education cesses. Incidentally, FBT, STT and CTT, which is yet to be notified, and the two cesses were introduced by former finance minister P Chidambaram in the last United Progressive Alliance government.
Its time to remove taxes such as FBT, STT and CTT and simplify the tax regime in the country, said former RBI governor Bimal Jalan.
Experts also point that as the stated intent of the government is to simplify tax structure, these kinds of taxes do not go in line with this.
If you look at the income tax statute, these taxes are not taxes on income and should therefore not be part of the income tax law. FBT is a tax on expenditure and STT is a tax on transaction. So, irrespective of whether you have an income or loss, you have to pay these taxes. These taxes may not contribute much revenue to the exchequer, but it increases administrative inconvenience and compliance cost, said KPMG partner Vikas Vasal.
The survey has also called for rationalisation of the dividend distribution tax to ensure that there is no double taxation on income. While part of the tax reform agenda could roll out in the forthcoming Budget, the new Direct Tax Code expected next year may carry the rest forward.
But the review may not be limited to just direct taxes. Indirect taxes could also see some rejig in this Budget, as the Centre and states work out the nitty-gritty of the Goods and Services Tax.
Reducing Customs duties on inputs to correct the inverted duty structure could also form part of the indirect tax reforms in the coming days.