Give Some, Take Some
'Give some, take some' has been the new motto of the Centre
- a stance that has been clearly vindicated through both the recent and last
year's Union Budget. Savio Rodrigues takes a look at the new changes
on fringe benefit tax and service tax, and its impact on business travel
Picture this (though it might appear to be a screenplay of a beaten-to-death
Hindi movie), you've been shot and the person tending to your wounds is the
same person who shot you. Unbelievable, don't you think? Well believe it. And
if you don't believe me, read through the Union Budget 2006-07 and you will
realise the unusual but not unbelievable situation in which the business of
corporate travel stands today.
On one hand the Centre, through extensive lobbying for many
business houses, reduced the much-dreaded fringe benefit tax (FBT) on tours
and travels (including foreign travel) from 20 per cent to five per cent. On
the other hand it levies a 12 per cent service tax on transport of passengers
(other than economy class) embarking on an international journey by air and
transport of persons by cruise ship.
Sowing Seeds Of FBT
Post the Union Budget 2005-06, the corporate travel circles
in the country were buzzing with doomsday predictions on account of the levy
of 20 per cent tax on fringe benefits. More importantly, many corporates, including
travel and hospitality companies, were peeved that travel and hospitality came
under the scanner of FBT; according to most of them spending on travel and hospitality
is intrinsic to business.
According to Rajan Varma, CFO of Dabur India, "The fundamental
issue is to determine what a fringe benefit is. If I am travelling on a business
trip, how is it a fringe benefit? The new rules give blanket discretionary powers
to the assessing officers to determine what a fringe benefit is." Supporting
his view is K R Anil Kumar, chief planning officer, MetLife India Insurance
Company Pvt Ltd, who states, "Some of the taxable items under FBT are purely
business expenses and there is no fringe benefit to employees. There is a clear
need to differentiate business expenses with those that may have some fringe
benefit to a group of employees. The FBT levy should have been restricted only
to such expenses, which clearly provide some benefit to a group of employees."
|Fringe benefits as outlined in section 115WB of the
Finance Bill mean any privilege, service, facility or amenity directly or
indirectly provided by an employer to his employees (including former employees)
by reason of their employment.
They also include reimbursements made by the employer
either directly or indirectly to the employees for any purpose, contributions
by the employer to an approved superannuation fund as well as any free
or concession tickets provided by the employer for private journeys undertaken
by the employees or their family members.
FBT: As It Stands Today
A year later, records show that corporate travel in the country has in no
way been affected by the dreaded FBT as companies were not willing to curtail
expenditure at the cost of risking business opportunities. While business travel
did not witness a downslide, the measure adopted to tide over this much talked
about crisis was the rationalisation of business travel expenses.
Asserts Daljit Singh, CEO (Operations) of Fortis Healthcare Ltd, "Any cut-back
on travel would adversely impact our business." T V Mohandas Pai, CFO and
director (Finance & Administration) at Infosys expresses a similar view,
"Nothing is going to change with the introduction of FBT. We are not worried
about paying the tax."
Ratish Pandey, GM of Bose Corporation India Pvt Ltd says, "We did not
reduce corporate travel or use of hotels as means of accommodation. However,
we certainly did look at optimising our travelling."
Corporates and travel companies alike have appreciated the step taken by the
finance minister P Chidambaram on reduction of FBT for tour and travel. According
to Om Prakash, director of Orbit Tours & Trade Fairs, the cut in FBT is
a welcome move and will give a boost to business from the corporate sector.
"Incentive travel has increased manifold all over the world and India is
no exception. This reduction in FBT will help further boost Meetings, Incentives,
Conventions and Exhibitions (MICE) travel, especially the incentive segment.
We did not face a drastic drop in business with the introduction of 20 per cent
FBT on travel and hotel stay last year as most companies were studying the ramifications
and trying to devise means to overcome this new hurdle. However, we did witness
a slight slump in business from smaller companies."
Arup Sen, executive director at Cox & Kings, is of the
opinion that the reduction is a positive move. "Last year the government
introduced FBT and it was the first time such a tax was introduced. They have
learnt from it and have reduced the taxation. I don't think the FBT in case
of value benefit in the form of tours and travel and hospitality had an impact
on business travel and conferences. Corporates did not curb travel just to save
FBT. The reduction will now improve the bottomline of corporates," informed
|As per the Finance Bill, fringe benefits shall be
deemed to have been provided if the employer has incurred any expense or
made any payment for the purposes of:
- Festival celebrations
- Use of club facilities
- Provision of hospitality of every kind to any person whether by way
of food and beverage or in any other manner, excluding food or beverages
provided to the employees in the office or factory
- Maintenance of guest house
- Employee welfare
- Use of health club, sports and similar facilities
- Sales promotion, including publicity
- Conveyance, tour and travel, including foreign travel expenses
- Hotel boarding and lodging
- Repair, running and maintenance of motor cars
- Repair, running and maintenance of aircraft
- Consumption of fuel other than industrial fuel
- Use of telephone
- Scholarship to the children of the employee
The introduction of service tax, which has been increased from 10 per cent
to 12 per cent on international first and business class air travel and travel
on cruise liners is viewed as a negative impact on business from the corporate
sector. But all in all, on the face of it, the budget this year looks good for
the travel industry, said Prakash.
The imposition of 12 per cent service tax on international business and first
class air travel is likely to see many executive class passengers opt for the
economy category - especially in short-haul sectors. Business and first class
international fares are generally three to five times higher than economy fares.
With airlines not willing to absorb the tax, it will further widen the fare
difference between business and economy class travellers. However, it is still
unclear whether the tax will be imposed on full list fares or discounted ones
that airlines offer to corporate travellers.
Industry experts say this may even force airlines to change the seat-mix between
business and economy seats in international flights. A third of all seats in
a flight are allocated to business and first class categories.
The government has clarified that it is the airlines' liability to pay service
tax and it does not pertain to transit passengers. While the burden will be
borne by a passenger, airlines have to collect the levy, account for it and
pass it on to the government. According to Praveen Gandhi, CEO (India) of Carlson
Wagonlit Travel, "The service tax on business travel will force many corporates
to travel via economy class. And it will certainly be bad for corporate travel
companies that use the facilities of airline and cruises."
Will the new budget put a spoke in the growing corporate
travel market? The answer is - very unlikely. While it may seem impossible to
escape the claws of the taxman on account of the new revisions that the finance
minister has incorporated, large corporates will certainly not reduce their
business travel or hotel stays; they will find alternate means to overcome this.
Like they say, where there is a will there is a way.It is however the Small
and Medium Enterprises that would have to take stock of their expenses more