In face of increasing demand from the industry for withdrawal or rationalisation of the Fringe Benefit Tax, the government is only willing to look into technical inconsistencies that may need clarifications.

"Some issues related to medical expenses, Leave Travel Concession (LTC) and hospitality are likely to be addressed in the next Budget," Parthasarthy Shome, adviser to the finance minister, said at a seminar organised by Assocham on Thursday.

• FAQs on fringe benefit tax

"It will be much more useful to listen to inconsistencies in areas of medical expenses and LTC, where there are anomalies, than to debate on whether the FBT should be levied at all," Shome said. The government had come out with a circular on August 29 clarifying certain questions raised on the various interpretations of the tax.

Shome countered Assocham's argument that the government could have hiked the usual tax rates instead of introducing a new tax.

"Tinkering with the rates or specifying disallowances for expenditures to be covered under the fringe benefit was not the best option. There are companies which have book profits but, after considering deductions under the Income Tax Act, they are out of the tax net. Such companies would have escaped the FBT."

The levy of the FBT is expected to increase the tax rate for corporates by 1-1.5 per cent.

Elaborating on the rationale of the FBT, Shome said, "We have noticed that many corporates had been structuring employee remuneration in such a manner that a large part of it was being booked as business expenditure and were not being taxed at all. This anomaly is sought to be removed through the FBT."

The government wanted to create a level playing field and tax the large amounts offered as fringe benefits to the employees, he said

Shome rubbished the argument of increased compliance cost for companies and said, "All the 16 expenses listed under the FBT are covered as deductions under the Income Tax Act and the FBT return only means that an additional page has to be filled wherein the FBT amount has to be specified for each expense."

He also dismissed the idea that the cost of litigation would outweigh the tax so collected.