In July last year, Australias tax office had said that employers who pay for employees funerals need not pay tax on such expenses. The reasoning: a person must have continuing existence to be considered an employee for fringe benefit tax (FBT) expenses.

Expense payments attract FBT in Australia, alongwith other benefits like use of a car, debt waiver, housing and so on. The Australian government has made quite a few changes in the FBT regime, after it was introduced nearly two decades ago. And tax professionals there continue to push for re-designing the structure to ease compliance burden on businesses.

Its no secret that policy managers in India have, by and large, replicated the Australian FBT model. The levy, based on the principle of cost to company, was introduced in the 2005-06 budget. Employers pay a 30% tax on a defined base on different expenses incurred on their employees.

Finance minister P Chidambaram defended the tax, saying that several perks were being disguised as fringe benefits to escape tax. A classic example was the employers contribution to superannuation funds pension plan framed by companies to provide retirement benefit to employees. Hefty contributions are made by companies to superannuation funds to retain senior managers. So the government reckoned that it was only logical to tax such contributions. Corporate India raised a hue and cry and wanted FBT to be scrapped.

While moving amendments to the finance bill, the government opted to whittle down some provisions to lower the tax burden. Pharma and IT companies felt the pinch a lot less as the base for valuation of some expenses was lowered. Advertising expenses were spared. Individuals, HUFs, charitable trusts, universities and institutions enjoying income tax exemption were also exempted.

However, the debate on FBT continued in the run up to the 2006-07 budget. Corporates were not averse to a marginal hike in the corporate tax rate in lieu of FBT. The FM did not heed. Norms were tweaked, again to lower the tax liability for companies. The most significant change was on superannuation funds employerscontributing upto Rs 1,00,000 per employee were exempted from paying the tax.

The dilution notwithstanding, the finance ministry continues to be under pressure to withdraw the levy. This time around, the commerce ministry is also pushing for its withdrawal as exporters do not want the levy.

But expert bodies like the Institute of Chartered Accountants of India (ICAI) seem to be aware of the ground-realities better, given that FBT is yielding significant amount of revenues. FBT collections topped Rs 2,933 crore till the end of December 2006 against Rs 1,776 crore crore in the same period last fiscal. Going by these trends, revenues could top Rs 6,000 crore by the end of this fiscal.