And the defence of the Government

By Vijay Kumar

Dr Parthasarathi Shome, Advisor to the Union Finance Minister, clarified that FBT was not a tax on expenditure and that it was basically a tax on the income of employees that was being collected at the hands of an employer. He said,

"There is no issue of constitutional validity of FBT. It is essentially a tax on income of employees that is collected from the employer, "

Dr Shome said that FBT was like VAT, where the tax was collected from the manufacturer even though the incidence of taxation is on the consumer.

Dr Shome urged India Inc to stop debating the issues of presumption and the philosophical matters behind FBT and instead identify the inconsistencies in the recent circular of the tax department.

"Within the concept of presumption, if there are any clear inconsistencies then they could be considered, analysed and removed. It will be useful to list them in a technical manner," he said.

Regarding further clarifications by another circular, he said,

"There is no plan for another circular. We have addressed all the issues that came to us in the circular that was issued. On the other hand, it is not in our culture to refuse reconsideration of any particular issue that is strongly felt by the taxpayer,"

Saying that FBT is more equitable, he said,

"If the tax rate was simply kept higher, then only those that have taxable profits would pay the FBT. In this particular case, it is much more equitable. There is an important issue of equity and the incidence is much more evenly spread”

Dr Shome underlined two sides of the story of FBT - misunderstanding of the structure of the tax and the other is fear of higher compliance of tax that may drain corporate profits.

"Any new tax with a new return arithmetically will increase compliance time. But I really do not believe that compliance costs would be vehemently increased on account of FBT”