Collection Trends, Classification of Expense Heads and Avoidance of Fringe Benefits Tax
03 Jan 2009 0 comment(s) Research Papers
A detailed research was carried out by me during 2007-08 while working with Ministry of Finance, Government of India on the contentious Fringe Benefits Tax (FBT), introduced in 2005 by the Government of India. I was granted special permission to access and use the e-filed data of various corporate taxpayers in India. The research report was submitted to the government, and subsequently, some essays/papers based on this research were published also.
The present paper, published in Economic and Political Weekly (issue dated 3 January 2009, Vol. 44, Issue 1) as second part of two essay series presents data analysis, various statistical tests and their findings to derive some deeper policy insights. It may be noted that the tax was withdrawn by the Government within next two years.
A downloadable pdf file of the research paper is available below. Further, the link to the website of EPW is as follows:
The abstract of the essay is reproduced below:
The government claims that the Fringe Benefits Tax has been introduced to tax those kinds of fringe benefits which are collectively enjoyed by employees in the form of facilities/amenities and therefore difficult to identify, segregate and apportion among beneficiaries for taxation. Accordingly, the tax liability has been fixed on employers, and not on the employees. FBT collection data for first two years (2005-06 and 2006-07) have been analysed to gain a deeper insight for fine-tuning. Some statistical tests have been conducted. The test of equality of two proportions for a large sample shows that the proportion of FBT collection under different heads has remained the same over the two years. The chi-square test for equality of proportion shows that this proportion has remained the same for most sectors. However, the chi-square test for homogeneity of sample data for each sector and each head indicates that sample data are not homogeneous. It points towards arbitrary booking of expenses under different heads, perhaps to avoid FBT.
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