FBT forces IT firms to relook at freebies

“IT companies would have to pay 2 per cent to 5 per cent of their revenue as FBT. The government should have, as well, increased the tax rate by 1 per cent.

Also, companies will face a bureaucratic nightmare in keeping records and it will push up the value of compliance,” said Prabal Basu Roy, CFO and Executive Vice-President of Polaris Software Lab.

While the sector is not too happy with the modifications made by Finance Minister P. Chidambaram, it has, nevertheless, welcomed some of the measures. Of course, the minister could have done more, leading players said. T.V. Mohandas Pai, CFO and member of Infosys board, said, “FBT on travel has been brought down to 5 per cent, a welcome move.”

A CFO of an MNC said companies would now re-look at their HR practices. “Pay-scales will now stop addressing the needs of housing, car loans, and other freebies to the employees. Salaries would be paid incorporating all perks into salary component,” he said.

Ravi Ramu, CFO, Mphasis BFL, said the FM had not addressed the industry concerns completely. “Earlier, the finance minister had assured us on removing FBT on legitimate business expenditure. He has not addressed this,” he added. “There is no FBT for organising a conference, but there is a FBT for bringing employees to that conference. So, where do you draw the line?” he asked.

Moreover, FBT has added more procedures to the accounts department in every IT company.

Roy of Polaris said the government needed to reconsider its attitude towards expenditure-based taxation system, which was incompatible with the system of taxing profits. “Taxing welfare-related measures is a retrogade taxation system and, in fact, the government has also imposed FBT on business-related benefits like travel allowance, etc,” he said.

Polaris, for instance, spends 4 per cnet of its revenue annually on fringe benefits to employees, he said.

A Satyam Computer spokesperson said, “We expected certain categories to be completely exempt from the FBT ambit. While that has not happened, we are glad there has been a reduction in rates. The subjectivity as to what heads would fall under the FBT will raise procedural and operational issues.”