Commerce ministry for scrapping FBT on exporters

NEW DELHI: Budget 2009 may bring cheer to global slowdown-hit Indian exporters as the commerce department tries hard to ensure the sector escapes the clutches of a tax it pays on non-salary benefits to staff.

The pre-Budget consultations that begin this week will see the commerce department lobby with the finance ministry for removal of the fringe benefit tax (FBT) on the export sector. Exporters have complained that the tax not only makes them less competitive but also adds to paperwork and transaction time and costs.

According to the Federation of Indian Export Organisations, FBT accounts for 7% of an exporter���s total costs and, therefore, affects their competitiveness.

The department supports the exporters��� claim that the FBT was making them lose their competitiveness in a shrinking global market and should be removed, a commerce department official said on condition of anonymity. ���We endorse the exporters��� view that there should be no FBT on export-related expenditure such as overseas travel, sales promotion activities and expenditure on entertaining clients,��� the official said. For instance, 20% of the expenditure on travel and hotel stay is treated as deemed fringe benefit. In fact, exporters have complained during their interactions with the finance and commerce ministers that the tax acts as a disincentive for them to travel and hunt for new buyers and participate in business fairs.

���We travel often to meet overseas customers and entertain them in restaurants. FBT acts as a disincentive in our contact-building initiative,��� Delhi Exporters��� Association president SP Agarwal said.

���With our exports falling steadily, we have to do our best to ensure that the government���s policies do not add to the woes of the exporters.

We will try to convince the finance ministry for removal of FBT,��� the official said. The FBT adds to a lot of paperwork as an employer is required to furnish a return of fringe benefits before the due date as given in Section 115WD. The returns are assessed by a tax inspector and the tax or interest payable or refund due are calculated.