New Delhi: The government is likely to review the controversial Banking Cash Transaction Tax, primarily designed to track black money, and even possibly scrap it in the Budget for 2008-09.
The tax is likely to reviewed in the budget and could even be withdrawn, sources said.
They said the Banking Cash Transaction Tax (BCTT), under which cash withdrawals above Rs50,000 by an individual or firm from the savings account of a bank are taxed at 0.1%, could be reviewed as growth rate of cash withdrawls from banks have declined and there is possibility of expansion of transactions under the annual information report (AIR) system.
“As other instruments become more effective, I think it would be possible to review BCTT next year,” Finance Minister P Chidambaram had said while presenting the budget 2007-08 last year. The BCTT was introduced in June 2005.
Industrial chambers, including Ficci, have asked the Finance Minister to withdraw this tax in view of the fact that all high value transactions have now to be supported by the permanent account number for the purpose of identification.
Apart from collection of vast information about transactions through AIRs, the Income Tax Department is also collecting information from banks on suspected transactions under the Money Laundering Act.
Sources said an alternative before the Finance Minister could be to bring high cash withdrawals, say above Rs50,000 under the purview of AIRs. The Minister had earlier said the transactions under the AIRs would be expanded at an appropriate time.
Meanwhile, opposing any move to withdraw BCTT, the Income Tax Department argued since it is scrutinizing only 1-1.5% of over 3 crore tax returns filed annually besides about 350 investigations and around 10,000 surveys, the BCTT should be retained to track black money.
Till 31 January, revenue collections from BCTT touched Rs460 crore against to Rs401 crore a year ago, up 14.5%.
Since it has helped to trail tax evasion to the tune of over Rs1,000 crore, it was not a right time to withdraw it, said the IT Department.
Earlier, Chidambaram has also said that BCTT continued to be an extremely useful tool to track unaccounted money and trace their source and destination. It has led the Income Tax department to many money laundering and hawala transactions.
However, in the last budget, he excluded cash withdrawals by the Central and State Governments from this tax and raised exemption limit for individuals and HUFs to Rs50,000.
Sources said the review of the BCTT could be possible as many lawmakers have asked the government to withdraw it and tighten tax administration.
With direct taxes likely to cross Rs 300,000 crore this fiscal as against a target of Rs267,490 crore, it would not be difficult for the Finance Minister to forgo revenues from this controversial tax, sources added.
“In any case, this levy could be made applicable only in those cases where people buy drafts from banks without quoting PAN. All other assessees should be outside the purview of this levy,” Ficci said in its pre-Budget memorandum.