Rework FBT, says India Inc

Govt to review fringe benefit tax proposal clause by clause.

The corporate sector was today unanimous in asking the government to go back to the drawing board regarding the fringe benefit tax (FBT) on the grounds that the present tax, if enforced, would increase bureaucratic interference, paper work, rent seeking and make the industry uncompetitve.

The demand was made during the first meeting of the informal committee set up by the finance ministry headed by the advisor to the finance minister, Parthasarthy Shome, on the issue.

The meeting, which will continue tomorrow, saw the industry unanimously questioning the nature of the tax.

Government officials on the other hand pointed out that the Centre had an open mind and was willing to go through the provisions of the tax "clause by clause" to ensure that legitimate business expenditure was not taxed.

"We pointed out that if the tax is so complicated then introducing it would only increase bureaucratic interference, paper work and rent seeking. We also pointed out that the present finance minister had in 1997 introduced such a tax which he withdrew later on account of its complicated structure. This tax is exactly similar to that," Amit Mitra, Ficci secretary-general, told reporters.

The officials pointed out that there were certain fringe benefits paid by companies that were escaping the tax net. And it was these benefits that the FBT proposed to target.

Echoing his views, Assocham President MK Sanghi said the tax would only increase paper work and bureaucratic control. CII's chief economist Rajiv Kumar said his chamber was of the view that the government should consider other alternatives.

"They should merely focus on those components where there was an incentive for leakages and tax those rather than introducing a tax that was across the board," he said.

The ministry officials are expected to explain what they perceived to be the difference between legitimate business expense and a fringe benefit tomorrow. "They will explain to us what is the difference between sales promotion and advertising," a participant said.