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Suresh Krishnamurthy

CORPORATE India conveyed its utmost displeasure in February when the Finance Minister ushered in the regime of Fringe Benefit Tax (FBT).

It even extracted some concessions from the Finance Minister and the original proposals were modified to reduce the tax incidence.

Fringe Benefit Tax, however, has not turned out to be such a bogey after all.

For the 42 companies that have made FBT provisions, the fringe benefit tax has lopped off a mere 1.1 per cent of the profits before tax.

It also accounts for only 6 per cent of the tax payable for the quarter ended June 2005.

Of the 42 companies, only seven are shelling out FBT of more than Rs 1 crore.

There are also only four companies for which FBT has worked out to more than 5 per cent of profits before tax. These are Titan Industries, Honeywell Auto, Gabriel India and Godavari Fertilisers.

Given the seasonality in profits for these companies, the proportion at the end of the year may well work out to less than 5 per cent.

There are also no industry-specific trends. TCS, with profits of Rs 578 crore, has set aside a provision of Rs 9 crore for FBT.

In contrast, Tata Infotech, with profits of Rs 23 crore, has set aside as much as Rs 1 crore. Service companies such as TCS, Infosys, Satyam, Wipro, HDFC Bank and Jet Airways, however, top the list of FBT-paying companies.

A change in compensation policy may also be a reason why FBT has failed to sting. For instance, till March 2005, Infosys Technologies made monthly contributions under the superannuation plan to a Trust.

From April 1 this calendar, a substantial proportion of the monthly contributions are now being paid directly to the employees. Only a nominal amount is being contributed to the Trust.

Infosys would have thus avoided paying FBT, even as taxes payable by the employee would have risen.

An unfortunate aspect has been the large number of companies that have opted not to disclose the provision for FBT.

Out of the 800 companies that are part of the many BSE and NSE indices, 147 companies have declared results so far.

Out of this, only 42 have indicated the size of the provision for the tax on perquisites and deemed perquisites to employees.

Prominent companies that have not disclosed provision made for FBT include ACC, Bajaj Auto, Hero Honda Motors, NDTV and Reliance Energy.

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FBT fails to sting — Cuts into only 1.1 pc of PBT in Q1

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