Ghost of FBT The Fringe Benefit Tax has been marked with controversies ever since its introduction. The debate on FBT is whether its implementation was necessary and whether this tax will actually yield the results for which it was conceived originally. The common belief is that tax evasion is practiced on a large scale in business and profession. It has been fashionable to decry evasion and extol avoidance – the former for breaking the law and the latter for skirting it. The Union Finance Minister in his proposals for Union Budget 2005 sought to address both - the former through the Banking Cash Transaction Tax and the latter through the Fringe Benefit Tax. The question that now arises is - will the new provisions governing FBT serve their purpose? Purpose could have been better served by other remedies Fringe benefits, not covered by Section 17 of the Income Tax Act have, in fact, been escaping tax altogether, being deducted as business expenditure in the computation of the employer's income from business. The fact that tax is so avoided has been known for long; it was a natural corollary to Section 17 in the absence of a countervailing measure. The argument here is that it was not necessary to fall back on the Australian model of FBT to tackle something, which could have been taken care of by amending the existing provisions of the Income Tax Act instead of introducing a new levy. The circulars and clarifications emanating from the Finance Ministry are further adding to the confusion. FBT is tax practitioners' delight and tax payer's nightmare. Host of tax consultants, including CAs, lawyers and civil servants, are already engaged in adding to the confusion. A writ petition has already been filed in a State, challenging the new levy on the ground that it constituted a tax on expenditure, on which the Central Government should not have embarked without the concurrence of the State Government since any unilateral action by it was beyond its legislative competence. Is FBT a tax on expenditure? Legal interpretation of the levy notwithstanding, FBT does not purport to be a tax on the expenditure incurred by an employer either on his own account or on behalf of the employee concerned. It is like a tax deducted at the source from any prerequisite within the meaning of Section17 enjoyed by an employee. Expenditure tax is a tax on personal expenditure, not on business expenditure. The cost of amenities or perks enjoyed by an employee cannot be treated as personal expenditure incurred by an employer. It is a legitimate expenditure which has been wholly and necessarily incurred for the employer's own business and which could have been paid legally as remuneration to the employee concerned. It may be added here that the value of a fringe benefit would not cease to be the employee's income even if the employer had offered him the benefits for the personal services rendered to him by the employee. Individuals and Hindu Undivided Families (HUFs), who were also sought to be covered by the provisions of the Finance Bill 2005, have been excluded from the ambit of FBT in the Finance Act as it finally came into force. The result of this omission would mean that there will be no tax in the hands of the individual employer or an HUF on the fringe benefits collectively enjoyed by the employees in any business or even non-business establishment of the individual or HUF. So, the confusion abounds all around. There was no need for this levy in the first place, as it runs counter to the avowed objective of the Finance Minister and the Government to simplify the tax law and procedures. Secondly, the levy may not yield the results for which it was introduced. The object of the levy could have been achieved without creating so much sensation and wasting so much time and money without any commensurate advantage. A straight forward fixed or flat deduction of tax from estimated/statutorily presumed fringe benefit component of the expenditure incurred by the employer could have served to steer clear of all the current controversies. Such deduction would have been a deterrent or a disincentive to collective conferment of FB and would have encouraged transparency and better tax compliance.