The Telegraph
Since 1st March, 1999
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FM date with fringe furore

March 1: Industry captains will get a chance to place their objections to the tax on fringe benefits given by companies when they meet finance minister P. Chidambaram in Delhi tomorrow at interfaces organised by Ficci and CII.

On Monday, after he wrapped up his budget speech, the general feeling in industry was that the tax was too exhaustive and not clearly defined. It would cover a wide range of items ranging from hotel expenses on tour, entertainment expenses, sales promotion and publicity expenses.

Fringe benefits could also be construed by the income tax officer to include training expenses, tax experts argue.

'Industry will try and convince the finance minister to drop this proposal. If the effort is to mop up tax elsewhere to make up for the cut in corporate tax, we wouldn't mind going back to the current tax structure,' said Adi Godrej, chairman of the Godrej Group.

T. V. Mohandas Pai, chief financial officer and director of Infosys, said: 'The fringe benefit tax seeks to bring under its ambit a wide variety of payments. Some of these are in the nature of obligations towards employees, while others are business related expenditure.

'A few countries in the world have a similar tax, where they seek to tax benefits to employees which are not captured under employee taxation. The definition in the act is too wide and needs to be clarified,' he added.

The technology major is concerned because thousands of its employees travel to different parts of the world on work.

Equally bemused were officials of Hindustan Lever. 'The marginal reduction in the corporate tax rate, although beneficial, may be neutralised by additional tax on fringe benefits and lower depreciation allowances. However, the area of additional tax on fringe benefits may need more clarification,' the company said.

Satyabrata Ganguly, chairman and chief executive officer of Exide Industries said it would push up costs by 5-6 per cent apart from creating problems in day-to-day functioning.

'I am sure all industry bodies will oppose it vehemently. The entire provision could have a demoralising effect on the employee. I don't see how the cost can be passed on to them,' he added.

S. N. Ajmera, senior general manager (finance) at LG Electronics India, said the expenses that Chidambaram wishes to tax amounts to about 30 per cent of the company's overall administrative expenses.

'We do consider this tax draconian. We don't know the thought process behind it. A lot of clarification needs to be made. It is very confusing,' he added.

LG was particularly worried about the imposition of the tax on selling and promotional expenses. It has one of the largest advertising budgets in the country.

However, Ajmera said the company would not be able to cut back this expenditure because 'these are business driven and not budget driven'. The company can't do without them.

While admitting that some of these expenses could be attributed to employees, Ajmera said, 'I don't think that we will pass on the burden of the tax to employees.'

The current level of LG's spending on sales promotion and publicity in a year is approximately Rs 250 crore.

'If one goes by the new taxation regime then close to Rs 36 crore will be liable for taxation. However, I don't see any rolling back of advertising budget,' Ajmera added.

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