Benefit from the fringes

There have been reports of the government agreeing to take a second look at Fringe Benefit Tax norms in the budget exercise. FBT was content...

There have been reports of the government agreeing to take a second look at Fringe Benefit Tax norms in the budget exercise. FBT was contentious from the day it was introduced, so it is welcome news that the government is willing to consider suggestions from India Inc.

One of the major points of contention from employees is with regard to 8220;any contribution by the employer to an approved superannuation fund for employees8221;. After the levy of tax on this component, almost all employers have shifted this component from a contribution to a superannuation fund, to a component of salary. Now employees have to pay tax instead of employers, and there is no more superannuation fund. I wonder if the government has deliberated on this situation or on whether it benefits citizens.

The labour department says that only 35 million out of a workforce of 400 million have access to some form of social security. Out of 35 million, 26 million workers get this benefit from Employees8217; Provident Fund. The figures speak for themselves; our social security is hinged totally on one EPF. We need other provisions to complement EPF such as the superannuation fund, which is now no more, thanks to FBT.

Whatever money employees get in hand after paying income tax, they now have to manage it by themselves for their social security. This is only assuming that an employee will still look at this new component as meant for security after retirement. How many trustworthy and good investment avenues does a common man in India have?

The prevailing interest rate will hardly make up for the inflation if the money is put in banks or government securities. India still does not have a conducive and mature stock market for common investors. It is not easy for everyone to invest money there, as it requires some sort of market literacy. There is always a risk of scams and the manipulation of the small-time retail investors, so it is not an avenue to invest your money for superannuation purposes. The much-hyped Pension Funds are still in their infancy and there is no assured rate of return from them. They urgently need reforms, for which the government is not finding the will and time. What8217;s left is chit funds, co-operative banks or dubious plantation schemes, and most of the time they are in the news for the wrong reasons. There is no way to make up for lost security, even if an employee will make the effort to park this new component.

The Indian government just copied FBT from developed countries without a comprehensive analysis. All these countries have excellent universal social security networks, other benefits like maternity benefits, Workmen8217;s Compensation, etc. The whole idea of levying taxes is to gather revenue for the benefit of citizens.

In some developed countries like Finland adjudged the most competitive economy by the World Economic Forum, where tax rates are as high as 40 per cent, no one is unhappy about it. They see the benefits of the taxes they pay in excellent health care, universal social security, unemployment benefits, maternity benefits which extends to free daycare facilities, etc. Does the government have some road map for utilising the funds it hopes to gather from FBT? Or will it be one more tax leading to what the IMF calls 8220;unproductive expenditures?8221; This budget is the opportune time for the government to re-examine FBT. It will be a relief if the government exempts tax on 8216;contribution to superannuation fund8217;, as it did for contribution to provident fund.

The writer, a manufacturing consultant, is based in Finland