The Hindu Business Line : Fast Becoming a Trauma

AS THE Budget-making process gets under way, every statement made by the powers that be is analysed threadbare by various segments of society. In a recent meeting, the Central Board of Direct Taxes (CBDT) Chairman indicated that Fringe Benefit Tax (FBT) was "fast becoming a trauma" for Indian industry. He also said that various facets of this tax would be examined and, if needed, more clarifications issued.

Though 107 questions have been answered through a detailed Board circular, the lawmakers, it appears, see the need for more clarifications.

While inaugurating the 78th Annual General Meeting of FICCI, the Prime Minister, Dr Manmohan Singh, said: "Many of you have concerns about the tax system. Over the last two years we have moved towards lower tariffs, uniform tax rates and easier procedures. There are still some concerns, which have been voiced. I promise to address these concerns over the next year."

One cannot but seek comfort from the fact that both the Prime Minister and the CBDT Chairman have accepted that there are genuine concerns in the field of taxation that need to be addressed quickly.

In the run-up to any Budget, there is much speculation about the likely policy announcements. The press has started making its own predictions. What the Budget will offer the common man is, generally, one the most discussed issues in pre-Budget forums.

FBT here to stay

A delegation of industrialists met the Finance Minister, Mr P. Chidambaram, on January 9 for a pre-Budget discussion, and it is reported that much of the time was devoted to FBT. While one section of the industrialists wanted corporate tax rate to be reduced to 25 per cent, the other wanted it raised by 2 per cent as a trade-off for the abolition of FBT. These are contradictory signals.

Is Budget-making only about FBT and other tax rates? Are there not more serious issues, such as infrastructure, effect of the WTO on agriculture, and so on? After the initial furore and excitement following the introduction of FBT, it now appears that even diehard critics of the tax have come to accept the fact that it is here to stay and, at best, are looking only at a softening of the tax.

The major concern now seems to be areas where the burden of this tax can be reduced and how to arrange the back-office procedures and information-gathering mechanism to ensure that the process of FBT compliance and assessments is smooth.

There will, no doubt, be a few areas of debate, such as, whether FBT should be levied on superannuation benefits, what constitutes a conference, what is a festival celebration, and so on. These are both technical and day-to-day issues, that will be sorted out one way or the other through the appellate forums.

Having tasted success, the Government will be unwilling to let go of FBT, which has already generated Rs 1,700 crore by way of revenue.

As time rolls on, just like service tax, which initially raked in Rs 400 crore but now generates Rs 17,000 crore, FBT will be a major revenue-raiser.

The debate still goes on whether recourse should be taken to the complicated route of levying expenditure tax on various heads when there is the easier alternative of increasing the corporate tax rate by about 2 per cent.

But the feeling in government circles is that FBT has to be viewed in a larger perspective and not merely from the tax angle.

(The author is a Chennai-based chartered accountant.)