Most of us like to turn a blind eye generally towards the accountancy procedures and specifically towards additional tax announcements by the government.
Its easy to think “this is not for me -it happens to other people.” Ignorance is bliss -truly -but only till the point it does not start affecting you. One such thing is the recently announced The Fringe benefit tax.
The Fringe benefit Tax
I entertain a client, give 50% of what I spent on the client to the government.
I travel on business, I spend on tickets and give 10% of the cost of the tickets to the government.
I give benefits (petrol, travel allowance) to my employees – I pay 30% of the amount I spend on feel good benefits for my employees to the government.
In short, the companies who go a step further to provide hospitality, benefits, travel to clients/employees end up paying tax for spending the money.
What is it and how will it be calculated
The taxation of perquisites, or fringe benefits, provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax.
Any benefits or perks that employees get as a result of their employment are to be taxed, but in this case in the hands of the employer. This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.
The value of fringe benefits shall be the aggregate cost incurred. That is, the total expense deducted will be considered for purposes of levying fringe benefit tax. From this, a certain percentage will be deducted. The difference therein will be taxed at the rate of 30%.
However, the fringe benefit tax rate varies from 10 per cent to 50 per cent depending upon the expense incurred: For example, for the use of telephones 10 per cent fringe benefit tax will be charged, while entertainment expenses, festival expenses, gifts, use of club facilities, etc will be taxed at the rate of 50 per cent.
End result: SMEs will end up paying way more to the government as tax. The heads that will come under tax include *everything* -just look at the list.
entertainment
festival celebrations
gifts
use of club facilities
provision of hospitality of every kind to any person whether by way of food and beverage or in any other manner
maintenance of guest house
conference
employee welfare
use of health club, sports and similar facilities
sales promotion, including publicity
conveyance, tour and travel, including foreign travel expenses
hotel boarding and lodging
repair, running and maintenance of motor cars
repair, running and maintenance of aircraft
consumption of fuel other than industrial fuel
use of telephone
scholarship to the children of the employees
So will employers who will pay fringe benefit tax deduct 30% more as taxes more the employees take home? Weather or not the employee is a tax payer. Most likely.
No wonder the entire industry is opposing it. Its detrimental to the growth of industry to have this kind of tax structure. The first repercussion will be on the employees -they will not getting as many increments or wont get increments in their salaries at all. In all likely hood their take home will be reduced by 30% should the companies decide so. And forget additional benefits totally!!
The only respite would be if the finance ministry is considers a threshold staff strength for levying the fringe benefit tax on employers. But then every company grows -wants to grow. This would seriously hamper the growth of the company.
So the general public are dead one way or the other. VAT and FBT in combination would be one of the worst tax structures implemented on the Indian Junta
