ANALYSIS:

Faulty Logic:

The law is supposed to tax expenses incurred by the employer, which have an element of personal expenditure. Memorandum explaining the provision explains that the rationale for levying the fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee. This is so, explains the Memorandum further, especially where the expenditure incurred by the employer is ostensibly for purpose of business but includes, in partial measure, a benefit of a personal nature.

A plain reading of the provisions show that while the intention might have been to tax the fringe benefits, the lawmakers, in their over-enthusiasm, seem to have gone a bit too far.

Can there be an element of personal benefits to an employee where the employer spends money on festival celebrations? If the employer lights firecrackers in the office on Diwali, the only benefit the employee would perhaps gain would be that his eyes would be able to see the display and his ears, hear the sound of the fireworks; I wonder if this can be called a perquisite? If it is, the lawmakers may even try to tax the neighbours, since they also derive indirect benefits from this event.

Expenses on maintenance of guest-house are incurred for the customers of the business. How can that be a perquisite to an employee? Can it be said that the employees of the company derive some collective benefits from the guest-house maintained by the employer for his business purpose?

Provision of hospitality of every kind to any person is taxable. "Any person" need not be an employee of the company. Thus, the law presumes that even in respect of hospitality extended to the customers of a company, a benefit of personal nature seems to flow to the employees! Even in cases of hotels, 5% of all expenses incurred on provision of hospitality to its customers would be taxable as fringe benefits.

Sales promotion, including publicity, also results in personal fringe benefits to the employees, says the proposed law. Perhaps the Finance Minister thinks that an advertisement by a company enhances the goodwill of the employees, and is thus taxable as fringe benefits.

All conveyance, tour and travel expenses, expenses on running and maintenance of cars and aircrafts would be considered fringe benefits. This would be so even in cases of companies, which are in the business of providing travel services to its customers, though, thankfully, the amount would be 5% in their case instead of 20%.

Fringe benefits are deemed to have been given to employees even in respect of depreciation on motor cars and aircrafts.

The list starts from 'A' and ends at 'Q', perhaps the people in the Finance Ministry tried their best to take the list to 'Z', but could not think of any other item of expenditure, having exhausted the whole list by the time they reached 'Q'

None except the Government spared:

The law is applicable to all employers, including charitable trusts. The earning of business income is not the criteria for taxability, the law clarifies that the tax would be levied on all activities whether or not such activities are carried on with the object of deriving income, profits or gains.

Thus a charitable hospital would also be required to pay taxes on the expenditure incurred on the "maintenance of any accommodation in the nature of guest house" and other heads.

The assessees who are not required to pay tax under the Income Tax Act since their income is exempt, and the assessees who do not have a taxable income, or have a loss during a year shall also be liable to pay the fringe benefit tax.

While local authorities are also included in the definition, Governments have been excluded. To be fair, the expenditure by the Government on payment of fringe benefits to its employees, MLA's, MP's and Ministers ought to have been taxable too.

Contradicts with the Sections pertaining to Presumptive Taxation:

Section 44AD, AE, and AF provides for presumptive taxation of certain assessees, viz, civil contractors, transporters, and retail traders. In the cases of these three categories of assessees, income is presumed at a fixed rate, and the provisions of Section 44AA relating to the maintenance of books of accounts do not apply to such assessees, which means the assessee declaring his income under the Presumptive Taxation method, is not required to maintain books of accounts.

Fringe benefit tax presumes maintenance of books of accounts, which contradicts with the wordings of these three sections of presumptive taxation.

Fringe Benefit Tax: Not a Fringe Matter
Fringe Benefit Tax - An Act within the Act