Withdrawing FBT and hiking corporate tax rate won't be as effective as taxing fringe benefits
Despite corporate India's persistent demand to rollback fringe benefit tax (FBT), Budget 2007-08 is unlikely to bring in any changes. Confirming the development, a finance ministry official said, We are of the view that the FBT is a very valid tax and we have decided to continue with it in its present form. With companies having an effective tax burden of about 17%, the North Block is of the view that withdrawing FBT and hiking the corporate tax rate will not be as effective as taxing fringe benefits.
The finance ministry's case is made stronger by the fact that FBT revenue has registered a record collection so far this fiscal. The Centre has mopped up Rs 2,999 crore from FBT till December-end and its collections are expected to go up to Rs 6,000 crore by the end of the fiscal.
Tax experts too feel that the strong collection figures make it unlikely that the tax will be scrapped or rolled back. They too, however, echo India Inc's views and are of the view that the tax has created an additional compliance burden on companies and is unfair to loss-making companies, who too are expected to pay FBT. Foreign companies too feel the heat of FBT, as the tax is not eligible for tax credit in their own countries.
Amitabh Singh, tax partner of Ernst and Young said, A complete rollback appears to be unlikely but it would be good if the finance ministry considers removing some heads such as sales promotion that fall under the FBT net.
NO FREE LUNCH The finmin's case is made stronger as FBT revenue had a record collection this fiscal Experts feel that the tax has created an additional compliance burden on companies
Introduced in Budget 2005-06, as a tax on perquisites of employees that escaped taxation, its rate was fixed at 30% on an appropriately defined base. However, due to increased demands from the private sector, in the Budget 2006-07 the government permitted companies to provide a few perks to their employees such as a relaxation in exemption limits on contributions to employee pension funds and tax exemptions in case of expenditure on employee transport.