Ricky Ponting may have faced a tough spell from Ishant Sharma, but Corporate India won?t encounter anything similar in terms of fringe benefit tax (FBT) this year. For, the finance ministry is unlikely to cast the tax net any further in Budget 2008-09.
?We are not thinking in terms of expanding the scope of FBT and bring more items under it this year,? an official source confirmed to FE. This is very significant, as FBT has emerged a big headache for accounts departments in the corporate sector.
The buoyant revenue position has made it easier for the ministry to take the call. Official figures show FBT collections have increased 64.79% to Rs 5,121 crore, against Rs 3,108 crore till January 15, compared with the same period last fiscal. Net direct tax collections have reached Rs 2,17,149 crore during the period. It is expected to surpass indirect the annual indirect tax receipts for the first time in India.
Introduced in Budget 2005-06, as a tax on perquisites of employees that escaped taxation, the FBT rate was fixed at 30% on an appropriately defined base.
This meant, other than salaries, expenditure made by companies for employees on entertainment, travel, welfare, accommodation and recreation were all made taxable. In Budget 2007-08 the tax was extended to include employee stock options plans too. The tax basically tightened the reach of the direct tax. It has, therefore, rapidly emerged as a key revenue-raising tool by taxing those perquisites, which were often devised by companies to reward their employees as a tax-free cache.
The annual addition to the list of items for FBT has, therefore, been a key look out for companies in the past few years. Each such addition has attracted a lot of controversy, the decision to levy FBT on employee stock options being one such.
Sources said the comfortable revenue position and the projected growth rate of GDP for next fiscal had placed the revenue department on a very comfortable footing. Another reason is the approaching general elections in 2009. The government is not keen to ruffle too many feathers. A changer in the dividend distribution tax in 2002 rung in by former finance minister Yashwant Sinha was allegedly one of the reasons for a reshuffle in North Block subsequently. A final decision on the subject would be taken closer to the Budget Day. Tax experts too feel that this would be the right move for the government. Amitabh Singh, tax partner at Ernst and Young said, ?This would be a very valid decision to not tinker with the FBT structure any more. Also the government has covered most items, and there is nothing to add to the fringe benefit list.?