No stereotype in corp spend on fringe benefits: MoF study

Thiruvananthapuram, April 19 | Updated: Apr 20 2005, 05:30am hrs
Not all big corporates splash their cash flows on fringe benefits. Nor do small firms always cringe on fringe benefits, according to Dr Parthasarathy Shome (advisor to finance minister), who chairs the committee that is reviewing the FBT (fringe benefit tax) proposed in the Budget.

A recent survey of the finance ministry had found that distribution of cash incentives among employees were rather skewed, Dr Shome revealed in a question-session following a lecture on Global interactions for Kerala, organised by Kinfra in Thiruvananthapuram. As many as 5-6% of the big businessmen do not throw in too many fringe benefits and perhaps as much as 26% of small businessmen do. So then, will there be a threshold staff strength for levying FBT on employers

"The final wisdom is that the effective tax rates of small and big corporates should be closer," Dr Shome explained. "Overall, our survey revealed that there is a little more labour-intensity in small corporates and more capital-intensity in big corporates," he said. Going by the Australian model, Union Budget had proposed collecting FBT at the employer-level. In countries like the UK, this tax is collected at the employee-level. Industry in India have been also nervous that the gains from corporate tax reduction would be nullified because of the cut in depreciation rates. According to some estimates, FBT in the present form was likely to cost an additional Rs 25,000 crore to India Inc.

Shome Committee is taking a hard look at what expenses could be treated as genuine business expenditure and what could be seen as fringe benefits.