The Hindu Business Line : At the heart of a tax on the `fringe'

THE Budget has imposed what it calls a `fringe benefit' tax on certain expenses incurred by corporates. These expenses are deemed to be in the nature of fringe benefits extended to employees.

The specified expenses when incurred on employees are `deemed' to be `fringe benefits,' and hence, attract a tax even though the employee may not derive any benefit from it.

Thus, if the business incurs some expenditure on a motorcar (an item expenditure covered by the new tax) used by an employee, it is deemed to be a `fringe' benefit even though the employee might use it exclusively for commuting between home and office.

But the operative word is `deemed.' Still, what if the company incurs an expenditure on a motorcar that is not used by any of its employees? Would it be `deemed' to have been used by the employees and hence liable to tax? It would be necessary to create a fiction (`deemed') of being so used by the employee, as otherwise the employer would escape tax by the simple expedient declaring that employee hasn't so much as even stepped inside it.

The relevant provision of the Finance Bill makes a distinction between certain types of expenditure where there is a manifest connection to the employees, such as when it talks about employers' contribution to a superannuation fund (a fringe benefit), and those such as `conferences' and hotel expenses where the employee connection may be entirely absent, and the `deeming' clause is meant to clothe all expenses of specified nature with an employee connection.

The question then is, are certain expenses involving the employee `deemed' to be his `fringe' benefit or the expenses themselves `deemed' to have an employee connection and thus attract the new tax? That would tax the skills of even a lawyer of the eminence of Mr P. Chidambaram.

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