Not enough, says India Inc

`Move will affect competitiveness & firms will have to change salary structures'.

India Inc is disappointment at the government's decision to continue with the fringe benefit tax in spite of a promise from Finance Minister P Chidambaram to exempt all genuine business expenses.

It says the move will affect the competitiveness of the corporate sector and that it will have to change its salary structure to reduce the impact.

The Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry feel a complete withdrawal would have been ideal. A snapshot of how the tax will affect different industries:

DRUGS

Drug companies, among the biggest beneficiaries of the reduction in the valuation of fringe benefits, welcome the move.

"The reduction of the fringe benefit tax on hotel and travel to 5 per cent will help pharmaceutical companies. But even at 5 per cent, the administrative part still remains. Most of these expenses are legitimate business expenses, which should not be taxed," says N Santhanam, CFO, Nicholas Piramal India.

ADVERTISING

With Finance Minister P Chidambaram exempting advertising and sales promotion expenses from the fringe benefit tax, the Rs 13,000 crore advertising industry is breathing easy.

Large spenders like fast-moving consumer goods and consumer durables companies say their advertising and promotion plans can now go ahead as planned.

INFOTECH

The reduction in valuation of the fringe benefit related to conveyance, tours and travel and hotels will give information technology companies some relief but the benefit may not be available for BPO companies as the lower rates are specifically for firms engaged in manufacture of software.

Infotech companies will also benefit from the exclusion of leased-line charges from the definition of telephone expenses.

"The net impact of the tax on IT & ITES companies could be up to 1.5 per cent of their gross revenue," says Rahul Garg, executive director, PriceWaterhouseCoopers.

AIRLINES

The fringe benefit tax will impact airlines by as much as Rs 500 crore a year.

"We see an impact as a result of the tax. There is a considerable amount of benefits that airline employees get as part of their salary," says GR Gopinath, managing director, Air Deccan.

The impact on the state-run Air India, Indian Airlines and Pawan Hans will be Rs 231.88 crore a year.

INSURANCE

The sale of group insurance policies will suffer. The number of group insurance policies, including superannuation funds, sold in March and April 2005 dropped as companies awaited

clarity on the tax. "If the burden of taxation is shifted to employers, corporate India will need to ensure expenses are not unnecessarily impacted on account of the fringe benefit tax," says Nikhil Bhatia, partner, BMR & Associates.

The specific sectoral tax changes have come in for praise:

LIQUOR

The margins for liquor companies are likely to improve by nearly 2-5 per cent with the reduction in the specific excise duty on molasses to Rs 750 a tonne.

Molasses accounts for about 20 per cent of the cost for liquor companies and in the past year, the cost of molasses has doubled.

"It is the right step at the right time as the liquor industry has been reeling from the increase in input prices but could not increase prices," says Abhiskek Khaitan, managing director, Radico Khaitan.

MOBILE PHONES

"The 4 per cent countervailing duty was affecting our manufacturing facility in India. LG will now induce an additional investment of Rs 80 crore into local manufacturing in India," says SN Rai, senior general manager, corporate logistics and commercial, LG.