Shome: The clutter will be removed soon

Calcutta, Aug. 26: The Union government will shortly issue a circular clarifying the various provisions and areas of application of the fringe benefit tax (FBT) system introduced in the Finance Bill 2005.

“We will issue a circular within the next few days to clear the confusions and clarify the areas of applications of fringe benefit tax for the industry,” said Parthasarathi Shome, adviser to finance minister P Chidambaram. He was talking to reporters on the sidelines of a seminar on FBT organised by the Confederation of Indian Industry (eastern region).

“The circular is likely to be issued by August 31,” said Shome. “It would cover about 100 broad issues raised by the corporate sector regarding the new tax system,” he added.

“In view of the confusion prevailing over FBT, the government has extended the tax filing date for the first quarter of the current fiscal (2005-06) from July 15 to August 31,” mentioned Shome.

He, however, declined to give any figure of how much money the government expects to mop up through this tax route.

According to industry estimates, collections from FBT for the first quarter was Rs 1,000 crore, which roughly translates into an annualised collection of Rs 4,000 crore. But, it is way off the mark of Rs 15,000 crore initially estimated, mentioned Raj Narain of Ernst & Young.

However, Shome pointed out that since the tax filing date has been extended till August 31, it is not possible to provide any collection figures as of now. “Also, we are not aware of the total collection figures as estimated by the industry,” he added.

Earlier, Shome explained that the FBT was designed to compensate for the loss in revenues due to lowering of customs duty, excise and personal income tax rates over the years.

The fringe tax also aims at balancing the inequity in the incidence of taxation in the corporate sector since it has both the efficiency and the equity arguments behind it.

“There is no scope for double taxation under the system as whatever is included directly in the salary of an employee, does not come under the head of fringe benefit. Employers have to pay tax only for the fringe benefits given to employees,” clarified Shome.