India Inc is reconciled to the idea of a tax on fringe benefits provided collectively to employees as proposed by Finance Minister P Chidambaram in his Budget for 2005-06.

In a meeting with the adviser to Finance Minister Parthasarathi Shome, the Confederation of Indian Industry asked for a flat rate of fringe benefit tax rather than removing the tax altogether.

The fringe benefit tax maze

"We have recommended a flat rate of 5-10 per cent for all the overheads. The proposed rates vary from expense to expense and tend to become cumbersome as companies may interpret it differently.  The tax, in its present form, is ill-designed," Rajiv Kumar, CII chief economist, said.

Kumar said the government was showing positive signals towards certain clauses like advertising and publicity.

"The officials are working towards categorising certain clauses and are open minded towards issues like advertising and publicity expenses," Kumar said.

Other industry associations, too, have scaled down their initial demand of scrapping the proposed tax.

"We are not against paying tax but this form of tax will negate the canon of simplification of taxes. It will increase bureaucratic interference, paper work and rent seeking. The finance minister had proposed and later withdrawn a similar tax in 1997. But it has again came back with faults," Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry, said.

Assocham, which was represented in the meeting by Rajesh Kapadia, president elect of Indian Merchants Association, said the chamber wanted a simplification of taxes and government officials were re-working the clauses and components.

The industry associations in their meeting with Shome had unanimously questioned the nature of the tax.