what is the logic of Fringe Benefit Tax?How is it that a tax is levied on expenses rather than income?

Question

Expenses on which FBT is levied are collective income for employees, not the employer;then what is the mischief that is desired to be corrected by FBT? Please answer giving an example.

Answer 1

FBT is a surrogate tax. It is actually a tax on the value of fringe benefits provided by the employer to his employees which would otherwise have been taxable as perquisite in the hands of the employees if only it could be linked to individual employees. Since it is not possible to tax the perquisites in the hands of the employees or even to estimate their value, this tax is levied on the companies on a presumptive basis. It is aimed at preventing perquisites given by companies to employees which are passed off as expenses and on which employees also do not pay tax.

Eg: Company hires car for employee to go to business tour. Employee's family travels with him to the place in the car. Normally this would be deducted as business expense and would not eb taxed as perquisite in the hands of the employee. FBT would capture some of this tax. In the new set up the companies will restructure the pay packages to pass on the tax to employees. Australia and New Zealand are two other countries which have the tax.

Answer 2

You are grossly mistaking a boon as curse. FBTs are ; a leased car a leased accommodation apaid driver for car ,maintenance for car and the list goes on which are only expenses you make out of your income and pay tax for it.Now go to your employer and ask him to restructure your salary. You may gain so much and pay less .upto 10 lacs p.a. you neednt pay tax?

Answer 3

if the expenses are incurred for some other person's enjoyment, it leads to reduced taxes for the one paying because it increase his expenses and thus deprive the government of taxes. FBT collects the taxes that would have otherwise been deprived of government.