The Hindu Business Line : Scrap fringe benefit tax, says FICCI

THE Federation of Indian Chambers of Commerce and Industry has asked the Government to scrap the Fringe Benefit Tax (FBT). The Chamber said that in the absence of a social security system in the country, the tax is irrational.

FBT was introduced by the Finance Minister, Mr P. Chidambaram, for the financial year 2005-06 to tax expenditure of the companies on sales promotion, publicity, medical and other aids provided to employees as part of work benefits. The rate of tax was set at 30 per cent by him.

Currently, contributions made by the employer to an approved superannuation fund is taxable under FBT. Superannuation fund is a pension fund framed by companies to provide retirement benefits to their employees. The Chamber has questioned the rationale of the tax in a country where there is no governmental old age security mechanism. In the present circumstances, many companies are planning to discontinue their superannuation funds, according to the Chamber.

The Government has made medical reimbursement, which was exempt to the extent of Rs 15,000 earlier, taxable under FBT. The Chamber has said that it was neither fair nor warranted.

It says that at present companies incur expenditure on education, family planning, recreation and maintenance of workers' quarters as part of their corporate social responsibilities.

Introduction of FBT goes against the concept of this responsibility of the corporates and these companies would be deterred from helping their employees even in times of distress.

It was also argued that the inclusion of sales promotion and publicity expenses in the benefits to the employees for the purpose of taxation. The Chamber has questioned the employer-employee relationship between a pharmaceutical company and the doctors to whom it distributes free samples. It said that these are genuine business expenditure and should not attract FBT.

It further questioned the basic premise of the FBT, which is part of the Income-Tax Act. The tax is levied on amounts that are not incomes and are in the nature of expenditure. In its pre-budget memorandum submitted to the Ministry of Finance, the Chamber has questioned its inclusion in the Income Tax Act, which is designed to tax only income and not expenditure.

In a competition driven economy, the Chamber said that corporates cannot afford to be extravagant and have limited their expenditure to legitimate business expenditure.

FICCI has said that introduction of the tax has negatively impacted the profits of the corporates to the tune of 7-8 per cent.

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