FM likely to rewrite FBT norms

NEW DELHI: Bruised by the fringe benefit tax (FBT) on stock option plans for their employees in the previous budget, corporates may expect some good news in the forthcoming one. The finance ministry is toying with a proposal to provide some relief to companies on FBT in the coming budget.

The move is in sync with finance minister P Chidambaram’s concern over slowdown in production of fast moving consumer goods (FMCG). There is a strong thinking that FBT on certain items, like sales promotion, should be pared or done away with completely to mitigate the pressures industrial sectors are witnessing due to a slowdown, sources said.

At present, sales promotion, travel and even gifts to customers in sectors like readymade garments, white goods, FMCG, small accessories and automobiles are under the FBT ambit. These expenses attract 30% FBT on 20% of the total amount spent. The industry has time and again demanded excluding these expenses from the tax ambit. If the proposal goes through, then companies may have to pay less FBT on certain items classified as fringe benefits.

Similarly, FBT on dealer meetings could be tweaked. Such meetings, industry has argued, are crucial in these sectors to promote sales. FBT is leviable even when a company does not have an income-tax liability. There is also a view that some exemption limit in terms of turnover should be prescribed for FBT levy.

Fringe benefits, as outlined in Section 115 WB of the Finance Bill, mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment.

The tax was introduced in the 2005-06 budget. FBT collections reflected the buoyancy in other direct taxes and grew by 64.79% to Rs 5,121 crore in April 2007 to January 15, 2008 against Rs 3,108 crore in the corresponding period last year.

Mr Chidambaram had excluded expenditure on free samples and displays from FBT even as he had brought Esops under the tax ambit.