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The Case for Simplifying Our Taxes

Omkar Goswami


Dear Finance Minister


My colleagues and I run a small corporate and economic advisory company. Like many in India, we work very long hours to increase our client base within the country and abroad and, in the process, develop our business. I am proud to say that we do so ethically.


Unlike many businesses in India generating less than Rs.10 crore of annual revenue, we run a financially transparent operation. No income comes in except in the form of cheques or bank transfers.  All our consultants and employees are paid by cheque. So too our vendors. Every penny earned and spent is properly accounted for. Our objective is simple: to please clients by offering superior advisory and consulting services at affordable prices — and, thus, to grow the enterprise in a sound, financially prudent, honest and ethical manner.


We believe in paying all our taxes — in full and at the right times. That includes depositing TDS for all pay-outs; paying the government its dues on account of service tax and educational cess at the appropriate frequency; paying the correct advance tax; and writing cheques for payment of the Fringe Benefit Tax (FBT).


It is the FBT that I wish to complain about. When you introduced the FBT, I was one of the those who critiqued it in this very column. But, whether I like it or not, the FBT is here to stay. Therefore, little can be gained today by advocating a removal of this tax. Anyone who does so will be told that there are half a dozen countries that have a similar tax, and that will be the conversation stopper.


However, do you or your civil servants know the sheer pain that is being incurred to correctly compute the FBT? Especially for smaller companies where employees need to travel regularly to seek new businesses and service the needs of clients. It is an utter nightmare for such firms; and the stuff that make outsourced chartered accountants rub their hands with glee.


To comply with the 15 June deadline, we have recently deposited a cheque of Rs.15,071 as advance tax due on account of the FBT. In computing this ridiculous amount, our external book-keeper had to scrutinise line items from the following heads of accounts: business promotion, conveyance and its reimbursement, driver’s salary, medical expenses, purchase of books and periodicals for the office library, petrol expenses, telephone bills, car parking expenses, domestic travel, foreign travel, hired taxi service bills, expenses incurred in scheduling meetings, hotel stay expenses, conference costs, car repair and maintenance, staff welfare costs, and many more.


All of this not only had to be calculated based on actual expenses incurred up to 31 May 2007 but also required to be projected for the year. Thereafter, the projected ‘fringe benefit’ line items had to be grouped and aggregated under different heads according to whether the FBT rate was 50 per cent of the fringe benefit, 20 per cent or 5 per cent. After making such detailed calculations on various linked spreadsheets and wasting a few days of his and our time, our external book-keeper-cum-tax calculator arrived at a wonderfully exact figure of Rs.15,071. If there ever was an impressively painful exercise signifying little, it was this. 


So, here is my suggestion. I appreciate that the exchequer needs tax revenues, and have no issues in paying taxes in full. But, instead of hassling the entire corporate sector with calculating such silly minutiae and inflicting needless accounting pain, why don’t you eliminate the FBT and raise the base corporate tax by 1 percentage point to 31 per cent? Better still, get rid of the surcharge and education cess, and take the corporate tax rate back to where it was, i.e. 35 per cent? Or 36 per cent, if that makes you feel more comfortable.


Let’s not have false reforms — where we claim that corporate tax rates are 30 per cent, but then add the surcharge, the education cess and the vexatious FBT. Finance Minister, please make tax paying easier. And let accountants better use their time.            


Published: Business World, June 2007


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