The Hindu Business Line : Fringe Benefit Tax retrograde in nature, says industry

WHAT does an employee of a pharmaceutical company gain when a medical representative from his company gives a sample strip of tablets to a physician? Nothing. But strangely it may be taxed under the Fringe Benefit Tax (FBT) that attempts to tap the hidden benefits employees get from their employers.

Participating in a discussion on FBT, organised by the Confederation of Indian Industry, Mr N. Rajasekar, Vice-President (Finance), Shantha Biotechnics, said the operative clause in the Act was the employer-employee relationship. It is a tax on the employer in respect of specified `fringe benefits' enjoyed by employees. So issues such as these, which might not form part of the employer-employee scope, could be challenged.

The best way to keep away from the new tax is to have no employees, including the watchman, said Mr Rajasekar.

"If a company sacks all of its employees and appoints them as consultants, it won't attract FBT," he quipped.

Physician samples may not attract exemption as giving samples is part of sales promotion. It is not considered to be an advertisement.

He said the tax would hurt the industry, particularly the biotechnology and service sectors.

Mr P.A. Chowdary, former Chief Commissioner of Income Tax, said this tax was retrograde in nature.

"The basic tenet of taxation is simplicity. Taxes should be simple to understand and implement," he said. "But FBT is a tax within tax. The cost of compliance will go up," he said.

"We don't require a tax like this to raise more revenues. It has created a fear psychosis among the industry."

Mr Chowdary, however, said assessees too were at fault. "Some of them tried to evade despite the low tax rates," he said.

He asked the industry to study the impact of FBT across the spectrum and then come out with suggestions.

Mr S. Ravi, a senior advocate in the Andhra Pradesh High Court, said there were some aspects that could be challenged legally.

Mr M. Gopalakrishna, Convener of Economic Affairs Panel (CII-AP) and Chairman of AP State Financial Corporation, said the tax was deeper than a `fringe' factor.

It, in fact, is a Cringe Benefit Tax, he added.

Clarifications likely

The Central Board of Direct Taxes (CBDT) is likely to come up with clarifications raised by various quarters on the Fringe Benefit Tax (FBT).

Talking to Business Line on the sidelines of a CII meeting on the new tax, Mr J. L. Girdhar, Director-General, Income Tax, said queries received from corporates, chartered accounts and chambers would be answered.

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