Review fringe benefit tax: Ficci

Double taxation to affect employees, says chamber

The Federation of Indian Chambers of Commerce and Industry (Ficci) has sought a review of the fringe benefit tax (FBT).

In a letter to Finance Minister P Chidambaram, it said the FBT will put an unnecessary burden on employees and will lead to double taxation.

"The perquisites offered to employees are taxable income for the employees as well as employers and will lead to additional compliance cost," Ficci argued.

The 1997-98 Finance Bill had proposed to remove artificial allowances on account of advertising, travelling and hotel expenses, but the FBT proposes the reverse this, the letter pointed out.

The FBT could also prove to be a major impediment to Indian companies spending heavily on brand-building campaigns to globalise operations. Foreign direct investment inflows and the growth prospects of the manufacturing sector will also be affected, according to Ficci.

Welcoming the corporate tax cut from 35 to 30 per cent as a progressive move, the chambers pointed out that the increase in surcharge coupled and the continuing education cess makes the effective tax reduction only 3 per cent.

The government should also consider restoring depreciation allowance to its earlier level and introduce free depreciation, it suggested.

The dividend distribution tax results in double taxation, besides triggering a cascading effect when there are multiple layers in the corporate structure, Ficci contended.

On service tax, Ficci suggested that all services be brought within its purview and a negative list be made to cover essential and basic utilities, clearly defining its ambit.

Tax feedback

• The effective corporate tax reduction is only 3%
• Restore depreciation allowance
• The dividend distribution tax results in double taxation of business income
• Bring all services within service tax purview and prepare a negative list of utilities and basic services