P. Chidambaram- The Lord of Small Things.

J. Chacko

It was interesting to watch the reaction of Shri P. Chidambaram, the Union Finance Minister, on  TV in one of the post Budget interactions when a journalist posed a question on FBT on ESOP.  Though it is not possible to recall the exact words, what he replied in essence was that he was not sure how much revenue this would generate or whether it would generate any revenue at all.  After all, he explained, ESOP has to be offered and accepted to make it taxable and then the price of ESOP would also have a bearing on the tax incidence.  His tone and body language gave an impression that he has done something great by not imposing this particular tax even without ESOP offer and acceptance!  What he wanted to convey, in essence, was that FBT on ESOP is a small matter for anyone to get agitated about.

FBT or Fringe Benefit Tax is one of the obnoxious pieces of taxation he had brought in during his present tenure as Union Finance Minister.  It generated a lot of irritation when it was introduced and many sane voices advocated its repeal.  He refused to budge and hence it has come into the books.  How much tax revenue this has generated is not known but by the nature of it, one can make a guess and the amount has to be trifle.  Now he has added ESOP or Employee Stock Options also as a fringe benefit for taxation.  By his own admission the revenue collected under this head, if at all anything is collected, would be nominal.

Another piece of taxation introduced by him recently is the “Cash Withdrawal Tax”.  Anyone withdrawing Rs 25,000/= or more on one occasion from a bank had to pay Rs 100/= as tax.  In the current Budget he has raised the amount to Rs 50,000/=.  This proposal also received a lot of flak when it was introduced but the FM stuck to his ground pointing out that the outgo would be too small for anyone to crib. This taxation also has got into the books.  What can be the revenue under this head?  It would also be pittance.

There is a much larger issue about these matters which is always lost sight of.  Though ESOP can pertain to any Company, it is more prevalent in our Software Companies than others. Small Software Companies, striving for success, use it as an incentive to their bright personnel. Some of our best brains work in these Companies and they in turn have to compete with some of the best brains elsewhere in the world to survive in business.  It is a national waste if we force such workforce to concentrate on inane matters like FBT and FBT on ESOP.  The end result of their toil to grapple with the myriad effects of such obnoxious taxation would not yield anything material to the Government.  The time they waste tackling these matters would be a drain on their talents which certainly deserve to be better utilised.

Look at cash withdrawal tax from the angle of the banks.  Transactions involving such taxation would be far and few but the banks have to keep accounts of each Rs 100/- charged and the amount then have to be remitted to the Tax Authorities.  If a cost benefit analysis is conducted, it would be seen that the banks would be spending more money to manage this operation than the amount they may be remitting to the Government. Banking is another sector where our bright people work and imagine the futility of their efforts on such an unproductive pursuit.  Ultimately it becomes a drain on our resources.

Why it is that bright people like Shri P Chidambaram do not look at issues from this angle?  For a nation to prosper, its citizens should be allowed to pursue worthwhile, productive activities so that their collective efforts add to the nation’s output and thereby enhance the national wealth. For too long, under the dirigisme regime of the so called Socialist Era, our people were pursuing worthless, unproductive activities with great vigour.  The results were there for all to see and hence we embarked on liberalisation process.  The mindset still remains stuck to the old methods and the results are such measures.  When will we get a Finance Minister who would break out of this and truly liberate our people from these worthless pursuits?  Union Budgets are not just statements of revenues and expenditure but are also powerful pointers about how we carry on our pursuits in life.

To do justice to the title, the recent enhancement of exemption limit for personal taxation by Rs 10,000/= also needs to be mentioned.  On a net basis, after adjusting the effect of increase in Educational Cess, a tax payer would benefit by Rs 920/- per annum due to this measure.  As many people have pointed out, it would have been better if the enhancement had not come as the benefit is too meagre to make anyone happy.

Small tinkering is the hallmark of the latest Budget and by the estimate of FM himself, the net gain to the Government as a result of all these small steps is also very small.