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Govt may do away with fringe benefit tax in budget
May, 27th 2009

The government is considering a proposal to do away with fringe benefit tax (FBT) the tax on all benefits and perks that companies provide to their employees introduced in the 2005-06 Finance Bill in the coming Union budget, according to revenue officials familiar with the development.

FBT, at Rs 8,000 crore last year, accounted for just over 2% of the total direct tax collection of Rs 3.4 lakh. There is a view that collections from this unpopular tax is too minuscule to worth all the paperwork involved, officials said on condition of anonymity.

From Day One, corporates opposed FBT not just on account of adding to the tax burden, but because of the huge additional paperwork and accounting complications involved in estimating a companys FBT outgo.

FBT is levied on perquisites provided by the employer to the employee in addition to the regular salary. This is a tax paid by the employer on the benefits or perks that the employee receives. It includes components like the employees accommodation, entertainment, travel expenses and phone calls. Later Esop too was brought under the FBT umbrella.

FBT has faced criticism in all countries where it is levied. In Australia, where FBT was introduced nine years ago, trade unions opposed it, saying that the eventual burden of the tax was on employees irrespective of it being paid by the employer or employee. Apart from India and Australia, FBT is also levied in the United States, New Zealand, Japan and the United Kingdom.

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