The Hindu Business Line : `Govt will address inconsistencies in FBT'

REMOVING certain doubts over the constitutional validity of the Fringe Benefit Tax (FBT), Dr Parthasarathi Shome, Advisor to the Union Finance Minister, on Thursday sought to make it clear that FBT was not a tax on expenditure and that it was basically a tax on the income of employees that was being collected at the hands of an employer.

"There is no issue of constitutional validity of FBT. It is essentially a tax on income of employees that is collected from the employer, " Dr Shome told newspersons on the sidelines of a conference on FBT organised by Assocham here.He was responding to queries on reported plans of certain companies, individuals or associations of chartered accountants to challenge the constitutional validity of FBT on the ground that it was essentially a tax on expenditure and therefore cannot be levied as a direct tax.

Dr Shome highlighted that FBT was akin to VAT, where the tax was collected from the manufacturer even though the incidence of taxation is on the consumer.

Earlier, in his address, Dr Shome urged India Inc to stop debating the issues of presumption and the philosophical matters behind FBT and instead identify the inconsistencies in the recent circular of the tax department.

"Within the concept of presumption, if there are any clear inconsistencies then they could be considered, analysed and removed. It will be useful to list them in a technical manner," Dr Shome said, indicating that suitable action on any of the inconsistencies can be taken in the next year's budget.

Asked if the Finance Ministry would come up with another circular on the same issue of FBT if certain inconsistencies were identified, Dr Shome replied in the negative.

"There is no plan for another circular. We have addressed all the issues that came to us in the circular that was issued. On the other hand, it is not in our culture to refuse reconsideration of any particular issue that is strongly felt by the taxpayer," Dr Shome said.

Asked as to why the government did not deem it fit to increase the corporate tax rate by 1-2 per cent and instead preferred to introduce FBT in the manner in which it has been done, Dr Some said that the FBT regime is more equitable.

"If the tax rate was simply kept higher, then only those that have taxable profits would pay the FBT. In this particular case, it is much more equitable. There is an important issue of equity and the incidence is much more evenly spread," he said.

Dr Shome said that two sides of the story are propelling the controversy over effect of FBT — misunderstanding of the structure of the tax and the other is fear of higher compliance of tax that may drain corporate profits.

"Any new tax with a new return arithmetically will increase compliance time. But I really do not believe that compliance costs would be vehemently increased on account of FBT," he said.

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