Chidambaram May Simplify Fringe Benefit Tax In Budget

by Lorys Charalambous, Tax-News.com, India

16 January 2006

Indian Finance Minister Palaniappan Chidambaram has hinted that the government will be prepared to make changes to the unpopular fringe benefit tax in the upcoming Budget, but business groups pressing for the tax to be abolished are likely to be disappointed.

Introduced in the 2005/6 Budget, the fringe benefit tax is levied on allowances companies pay to employees, but has been strongly opposed by industry.

In its original form, the proposal would have brought a wide range of business spending, such as advertising, consultancy fees and travel and entertainment costs, into the tax net. However, Chidambaram has already been forced to water down the measure following criticism from businesses, which complained that the scope of the tax was too wide.

However, industry groups meeting with the Finance Minister last week ahead of the 2006/7 Budget contended that FBT continues to tax genuine business expenses. They also said that the rules remain ambiguous and increase the probability of conflicts between companies and the tax department.

Demonstrating the level of feeling against FBT, industry groups have even said that they would be prepared to see a 2% increase in corporate tax to 32% in return for the abolition of FBT.

Speaking last week, Chidambaram expressed his willingness to re-examine the tax.

“If there are any glitches in the manner of tax administration, I have always said the matter can be revisited. Some simplification can be expected in the Budget,” he told reporters during a conference organised by the Forum of Financial Writers.

However, the Finance Minister stopped short of saying that the tax might be abolished.

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