Get More Info

  • Views Search

    Portfolio Tracker
  • : Fringe Benefits Tax: A perspective...

    Fringe Benefits Tax: A perspective...

    "I have looked into the present system of taxing perquisites and I have found that many perquisites are disguised as fringe benefits, and escape tax. Neither the employer nor the employee pays any tax on these benefits, which are certainly of considerable material value. At present, where the benefits are fully attributable to the employee they are taxed in the hands of the employee; that position will continue.

    In addition, I now propose that where the benefits are usually enjoyed collectively by the employees and cannot be attributed to individual employees, they shall be taxed in the hands of the employer. However, transport services for workers and staff and canteen services in an office or factory will be outside the tax net. The tax is not a new tax, although I am obliged to call it by a new name, namely, Fringe Benefits Tax. The rate will be 30% on an appropriately defined base."

    This was part of the budget speech made by the Finance Minister, Mr. P. Chidambaram, on February 28, 2005. India Inc. was far from impressed. Indeed, it has caused considerable consternation amongst industrialists and corporates, who have been very disappointed with this particular move in Budget 2005-06. Here is a reaction from Mr. Adi Godrej, the man heading the Godrej Group.

    "In my view, there are two key negatives from this budget. One, the fringe benefit tax. I think it is quite absurd to tax things like travel. Now, when our salesmen travel, they are thinking that it is a 'fringe' benefit. If you talk to the salesmen, they hate to travel. They only travel because that is their job. They are away from their family for days together. To call it a fringe benefit is absurd. Certain things I can understand when categorized as 'fringe' benefits. But not things like travel. So, some of the provisions in the fringe benefit tax would have to be amended. To my mind, it is a badly formulated tax, disallowing or taxing legitimate business expenses."

    Thus, it becomes obvious that taxing such legitimate business expenditure is a totally retrograde step. We did a brief research on the impact of the FBT on some of India's top corporates for the period ending December 2005 (9mFY06). The impact can be seen from the table below. While the average impact for the companies taken is not that much, at just around 0.13% of sales for the period, and 0.80% of the corresponding PBT, the main point to be noted here is the direction of this move. It is undoubtedly a step backwards and only adds to the hassles of corporates, which are anyways burdened with a multitude of taxes in the form of sales tax, octroi, entry tax, excise and the like.

    Company Name FBT (Rs m) Sales (Rs m) PBT (Rs m) % of sales % of PBT
    A.C.C. 63 33,444 5,947 0.19% 1.06%
    ABB 52 23,553 2,961 0.22% 1.76%
    BHARTI TELE 128 82,684 17,504 0.15% 0.73%
    CIPLA 32 21,151 5,043 0.15% 0.63%
    DABUR 28 14,196 1,795 0.20% 1.57%
    DR.REDDY 51 16,581 2,341 0.31% 2.20%
    HDFC 19 30,298 10,428 0.06% 0.18%
    HINDALCO 71 77,423 13,083 0.09% 0.54%
    HPCL 83 502,020 (16,173) 0.02% -0.52%
    ICICI BANK 173 97,947 22,126 0.18% 0.78%
    INFOSYS 90 68,976 20,191 0.13% 0.45%
    IPCL 32 61,710 10,560 0.05% 0.30%
    ITC 147 70,061 24,424 0.21% 0.60%
    L&T 163 101,403 7,414 0.16% 2.19%
    MARUTI 48 87,812 12,246 0.05% 0.39%
    REL. ENERGY 36 29,810 5,420 0.12% 0.66%
    RELIANCE 200 566,690 77,780 0.04% 0.26%
    SAIL 206 187,509 48,525 0.11% 0.42%
    SATYAM 67 34,790 10,277 0.19% 0.65%
    SBI 1,310 342,430 62,239 0.38% 2.11%
    SHIP. CORP. 23 24,804 7,348 0.09% 0.31%
    TATA POWER 56 33,377 6,002 0.17% 0.93%
    TATA STEEL 153 146,931 42,909 0.10% 0.36%
    TATA TEA 15 12,741 2,158 0.12% 0.70%
    TCS LTD. 137 89,301 24,660 0.15% 0.56%
    VSNL 32 28,219 5,567 0.11% 0.57%
    WIPRO 179 69,945 16,164 0.26% 1.10%
    Total 3,593 2,855,806 448,939 0.13% 0.80%

    * All figures are pertaining to 9mFY06

    One of the factors that determine the competitiveness of a country's industries is the tax regime in that country. Indian corporates, as mentioned above, suffer from a maze of taxes, plus the FBT. To add to that, there are numerous surcharges as well, such as the education cess. Therefore, it does seem that the levying of the FBT could be a smaller part of a much larger problem - that of the maze of taxes that plagues India Inc. and erodes its competitiveness.

    We hope that the FM, in this budget, will take steps that show his forward-looking approach, with the longer-term competitiveness of India Inc. in mind. India has proved itself in fields such as software, where the tax regime is very favourable and the policy environment is friendly. This is a wonderful example that can be repeated in many other industries, provided the right amount of political will is there and red-tapism is dispensed with. Undoubtedly, the industry would be looking forward to less of such 'fringe' taxes, come February 28, 2006.

     Research ReportsTop 100 Indian companies with Buy/Sell price limits
     StockSelectBuy/Sell recommendation every week in your mailbox
     Mid-Cap SelectBuy/Sell recommendation every fortnight in your mailbox
     FundSelectMutual Fund Advisory with downloadable database

    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.


    © Equitymaster Agora Research Private Limited |
    Why Personalfn? | Why Equitymaster? | Terms of Use | Contact Us | About Us