New Delhi, Sept. 18: India Inc fears it will lose a lot of moolah this festival season as the fringe benefit tax on promotion offers and brand endorsements crimp its ability to come out with high-decibel campaigns.
The chambers ' Federation of Indian Chambers of Commerce and Industry (Ficci) and Assocham ' have demanded a fresh relook at the FBT, which now covers payments made to celebrities and brand ambassadors.
While urging finance minister P. Chidambaram to remove expenses on sales promotion and payment to brand ambassadors from the ambit of the tax, Ficci president Onkar S. Kanwar said, “There will be no significant loss of revenue to the government if these items are dropped from the FBT list.”
Last month, the government came out with a 40-page clarification to remove any lingering doubts or confusion about the application of the FBT. Big-time advertisers ' especially makers of consumer electronics items and fast moving consumer goods ' have been moaning about the impact of the FBT on their festival-season sales.
“The clarificatory circular number 8/2005 dated August 29, 2005 has also belied our expectations,” Kanwar said. “Genuine business expenditure not even remotely connected with the employer-employee relationship has been subjected to the FBT, which is neither fair nor warranted.”
The FBT kicked up a storm ever since it was introduced in the budget.
The circular issued in August says the tax base for the purpose of the FBT is the value of fringe benefits provided or deemed to have been provided by an employer to the employees during the previous year.
The industry is of the view that with key marketing functions such as expenses on brand ambassadors, celebrity endorsement and distribution of samples being brought under the FBT, “the bottomlines of companies such as FMCG, pharmaceuticals will be adversely affected”.
A recent survey conducted by the Assocham revealed that companies planning major sales promotion during the forthcoming festive season beginning with Diwali “will fork out extra expenditure between 6 to 17 per cent with the introduction of the FBT”.
The survey said the greatest impact of the FBT on festival sales would be seen in FMCG products, passenger cars, travel agents, insurance policies, housing schemes and hotels. The explanatory notes on FBT states that gifts given to employees will not be spared from the tax.