Please, Mr Chidambaram

When critics savaged him on the Fringe Benefit Tax (FBT) that he had proposed in the Budget, Finance Minister P Chidambaram’s reply was that most people who read the Finance Bill were not lawyers and therefore did not understand — graciously, he added, he was not blaming them for this.

If they’d read the charging section of the Bill, he explained, it would be clear the government just wanted to tax fringe benefits, not legitimate business expenditure. And by way of precedent, he cited the fears raised about the Annual Information Returns — that even grocery bills would have to be filed! — which turned out to be quite unfounded. The problem is, now that the explanatory notes to the FBT are out, the fears expressed were not entirely misplaced.

While some items have indeed been removed from the purview of FBT (advertising expenses, for instance), many others remain. Indeed, there are contradictions within the circular that are shown up in the answers to 107 hypothetical questions that are provided in a helpful FAQ section.

Take legitimate business expenses that were to be kept out of the purview of FBT, for instance. The very beginning of the circular, which defines what FBT is, says any hospitality provided to any person (excluding food to employees eaten in the office/factory) qualifies as a fringe benefit, and a fifth of this will be used while calculating the tax payable.

If you’re travelling to discuss the advertisement plan for a product, for instance, the expenditure incurred on travel including the hotel, FAQ number 11 helpfully tells us, will be liable to FBT as “such expenditure shall be construed to have been incurred for the proximate purpose of traveling and not the ultimate purpose of advertisement”.

While various expenses such as brokerage and selling commissions or the charges of call centres making cold calls to potential clients are not liable for FBT payments, distribution of product samples (such as medicines to doctors) are liable to FBT.

Getting Sania Mirza to endorse your product, instead of poor Virendra Sehwag who’s fallen out of favour nowadays, similarly, is liable to FBT. If a company executive travels to meet a client, FBT is to be paid, though if you hired a consultant to do the same thing, that would be a business expense.

If an employer owns an exclusive training centre to train employees, the expenditure on food and beverages provided there are not taxable under FBT — if, however, a training centre is hired by the employer, FBT is payable on the food and drinks used! Ditto, if you decide to take the employees out of town for training.

This gets plain ridiculous, as opposed to plain irritating, when you put together some of the questions and answers on the same subject of food and beverages. If an employee buys food while working after hours and gets the money reimbursed, it attracts FBT — clearly then, it is better for the employer to buy the food in the first place.

If the same employer buys non-transferable food vouchers for the same amount used by the employee, this is non-taxable under FBT, yet any credit card reimbursements for the same food is taxable!

The bottom line is that FBT brings with it more subjectivity, more paperwork and more scope for disputes. Since the ministry’s calculations are that the tax will yield around Rs 4,000 crore, why not just increase corporate tax rates to make up that money, and forget the whole exercise? At least it will be easy to understand and follow, especially since everyone is not a lawyer. Will the finance minister oblige next February?