India Inc nervous about fringe tax benefits

India Inc continued to be nervous about the proposed fringe benefit tax and felt that the gains from the reduction in corporate tax announced in the last Budget would be nullified by the cut in depreciation rates, said the Associated Chambers of Commerce and Industry's Business Barometer survey.

The survey included the views of some of the leading chief executives in corporate India.

Nearly 70 per cent of the CEOs surveyed were happy with the reduction of the corporate tax from 35 per cent to 30 per cent, while 57 per cent out of them were of the view that the gains from the corporate tax reduction will be nullified because of the cut in the depreciation rates.

Most of the CEOs surveyed said that the impact of the fringe benefit tax would be "most severe" on Indian enterprises. According to the survey, CEOs argued that advertisement and sales promotion expenses should not be included under FBT.

The survey also pointed out that the cash withdrawal tax would be a big blow for small retailers and dealers.

However, 30 per cent of the respondents said that since the surcharge has also been increased from 2.5 per cent to 10 per cent, the overall benefit of the corporate tax reduction was only around three per cent.

"They would have been happier had they got the benefit to the tune of 5 per cent. This is besides the burden of the FBT which would hit the bottomline of the corporates," the survey said.

The government should take a relook at the FBT since new tax would add to the industrial cost and make Indian goods and services uncompetitive", said ASSOCHAM president Mahendra K Sanghi.

Most CEOs agreed that FBT would result in a substantial increase in the amount of paper work, which could also lead to misuse by the assessing officer.

"Bringing the expenses on gifts, conferences, hospitality to business clients under the FBT net would dampen the business sentiment and the investment environment to a large extent," opined nearly 70 per cent of the respondents.

About 20 per cent of the CEOs covered under the ABB survey, were disappointed that there were no clear signals on divestment and also with the inadequate direction on implementation of value added tax from the FM.

A similar number of respondents pointed out that the FM overlooked the dividend distribution tax. "A reduction in the dividend distribution tax would have resulted in more money in the hands of corporates as well as the recipients of dividends," they said.

The CEOs also felt that the tourism industry should have been granted the infrastructure status as it had been the case for other sectors like ports and airports.

"A level playing field needs to be given to the industry which is bound to provide 25 million jobs by the year 2015,' the survey said.

According to industry estimates, there was a need to add another 60,000 hotel rooms in the country in addition to the existing 100,000 government approved rooms in the next three years.