The Hindu Business Line : `FBT not in tune with spirit of liberalisation'

WHEN the international community is looking afresh at India as an emerging economy, the Government needs to do positive things to make sure that nothing is done to affect investments flows.

Participating in a workshop on fringe benefit tax (FBT), organised by the Bharat Chamber of Commerce here recently, Mr Pallav Gupta, General Manager - Taxation, ITC Ltd, said considering the fact that the projected annual revenue expectations from FBT was only around Rs 10,000 crore, the amount of paper work on FBT account (requiring scanning of separate returns) for the department may be huge.

He wondered whether the Income-tax Department was really equipped to handle this additional work on account of FBT. Additionally, queries on FBT addressed to various trade bodies and institutes from various quarters were still pouring in, and a fresh circular on clarifications from the government is expected by mid-November.

Mr Gupta said that very few countries have FBT, and Australia, in particular, which was cited by the Ministry as having an FBT provision, has now withdrawn this provision. Is there a cue in this for India?

Understanding of the various provisions relating to FBT, especially the Heads and Sub-Heads, issued under Explanatory Notes through a circular, may prove to be a herculean task even for the department people. It is felt that besides increase in transaction costs, it would also take enormous time for corporates to identify the FBT-related expenses and file the returns.

Issues such as applicability of FBT to group-linked insurance benefits and group life insurance have to be reconsidered, as an identified and not a Fringe Benefit.

As per the clarification issued by the department, if expenditure by the employer on group health insurance or group medical insurance or group life insurance is for the purpose of employee welfare, and if it fell within the scope of clause (E) of sub-section (2) of section 115 WB of the Income-tax Act, it is liable to FBT. Alternatively, if such expenditure is a statutory obligation, it would not be liable to FBT, Mr Gupta added.

Describing the FBT enactment as a "highly confusing" one, Mr Santosh Rungta, President, Bharat Chamber of Commerce, said it was unfortunate that while emphasis was being laid on simplification and single-window clearances, "the Union Finance Ministry is, every year, looking for collection of revenue in the form of surcharge, cess and now, FBT".

Mr Rungta said it was surprising that several items of expenditure, which are in the nature of normal business expenditure and cannot be related as employer-employee payments, are being considered as being liable to FBT. "At the same time, it is also not clear as to why FBT under Chapter XII-H is not allowed to be treated as business deduction, as there is a tacit admission in the circular itself that FBT is an expenditure laid out wholly for the purpose of business of the employer".

He wanted to know that if the above admission is acceptable and FBT is indeed an item related to business expenditure, why should it be disallowed in the normal computation. According to him, the levy of FBT was akin to double taxation. Mr Rungta suggested that it would have been more appropriate to enhance the rate of corporate taxation directly instead of FBT, as this would have been in consonance with the spirit of liberalisation and globalisation.

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