Wednesday, May 04, 2005

Fringe Benefit Tax

I am not an economist so probably don't understand the logic of having Fringe Benefit Tax the way it has been planned. I have heard numerous interviews now of various Finance functionaries and the Finance Minister himself and have yet not got convinced of the need.

The last argument given is that it only adds a max of 1% to 1.5% additional tax to all organisations, so they should not complain about it.

My understanding why this tax has come into being is to generate revenue for the Government's expenditure. So the corporates have to pay this money this way or the other.

To me a simple solution staring at me is that the corporate rate of taxation be made 31.5% instead of 30 and do away with the FBT. This is equivalent to what the corporate would in any case pay to the Government and will cover the fringe benefits that are provided by various employers. I am sure most corporates would be happier paying the additional tax in lieu of FBT. And just to make the Government happy we can call the additional tax as the Fringe Benefit Cess (just to cater to the emotional attachment the finance ministry has to the term Fringe benefits).

But then I guess you would have to be a brilliant economist to ignore such simple logical solution. Lets raise a toast to simplifying our tax structure with an official tag line of "Nothing simple about it".........

3 comments:

nerio said...

Brilliant idea to get the same outcome. But then I suppose even a Harvard Business School graduate can succumb to the system. Babudom rules!

vt said...

I guess in the end it has to do with a person's ego and stubbornness. Despite representations by all associations representing the business community in India and suggestions like the one mentioned here, the FM did not budge. As a CA I can assure you that the paperwork invoved is going to increase manifold - other than the HR compensation issues that this raises !

venkatesan said...

Well! if the FM does not tinker with the exisiting tax then how will the Taxman and the political party make money on the sligh. as the co's will not know how to post these taxes and he will be questioned by the tax department, it goes on and on.
One can make things easily,u have a business tiny or big you pay every year 5% of your turnover to the govt.
That is it IT is there to streamline the process ask all the top IT companies to e-governance the entire process give them a small rebate in their tax filing and at the same time they should be happy at the old saying " never ask the Govt what u can do for the betterment of the country but as citizen what you can do for your country"
Penalize the company 5times if he has cheated the country by giving false declaration as all is comuterised. This tax can hold good for small paandhukhan to the TATA's, Reliance,BIRLA's etc.
Individual pay 2% of your income as Income tax and ensure that 10% of the income is saved in BANK/RBI bonds, Infrastructre etc.No other concession or tax.
Senior Citzen can pay 1% of the salary.
All transaction to be done in cheque form. so that there is no black money i.e any transaction above Rs10,000.00 should not be dealt in cash.Penalty of rs1000per transaction.
These simple matters will help our country on the long run