The Indian corporate sector is likely to face an additional tax burden of Rs 650 crore (Rs 6.5 billion) in 2005-2006 on account of the fringe benefit tax proposals in the Union Budget for 2005-2006.
However, if the effective tax rate for the corporate sector increases by 1-1.5 per cent on account of the new tax, as Finance Minister P Chidambaram said it would on Monday, the additional tax burden would likely to be around Rs 1,500-2,200 crore (Rs 15-22 billion) in 2005-2006.
This conclusion is based on a study of the annual reports of 2,600 companies culled from Capitaline Plus' corporate database. The study reveals that the corporate sector spends around Rs 6,500 crore (Rs 65 billion) on employee welfare and around Rs 7,000 crore (Rs 70 billion) on conveyance, tour and travel.
Expenditure on advertisements and sales promotion has not been considered because this is excluded from the fringe benefit tax.
This study has its limitation as no separate information is available on company spending on entertainment, hospitality, hotels, boarding and lodging, telephones, festival celebration, club facilities and scholarships.
The study assumes that companies club this expenditure either under staff welfare expenses or travel. No information on the contribution to superannuation funds of employees and advertisement expenditure is available either.
The additional tax burden of Rs 650 crore has been arrived at after considering the fringe benefit tax concessions given to pharmaceuticals, IT and construction companies.
The Rs 650 crore figure can be broken up into Rs 390 crore (Rs 3.9 billion) for the fringe benefit tax on welfare expenditure and Rs 360 crore (Rs 3.6 billion) for the tax on travel expenditure.
The 2,600 companies earned a profit before tax of Rs 1,50,000 crore (Rs 1500 billion) in 2003-2004. If the effective tax rate goes up by 1-1.5 per cent because of the fringe benefit tax, the burden corporate India faces could be Rs 1500-2,200 crore.
The most profitable company in the country, ONGC, will face the biggest impact of the new tax -- around Rs 57 crore (Rs 570 million) or Rs 136-204 crore (Rs 1.36-2.04 billion) if the effective tax impact is around 1-1.5 per cent.
Indian Oil will pay a fringe benefit tax of Rs 30-145 crore (Rs 300 million-Rs 1.45 billion). The figures for Reliance Industries will be Rs 12-94 crore (Rs 120-940 million), for the National Thermal Power Corporation Rs 13-88 crore (Rs 130-880 million), for Hindustan Lever Rs 10-33 crore (Rs 100-330 million), for Infosys Technologies Rs 7-33 crore (Rs 70-330 million), for Wipro Rs 16-27 crore (Rs 160-270 million), for Steel Authority of India Rs 24-39 crore (Rs 240-390 million), and for Jet Airways Rs 3-17 crore (Rs 30-170 million).
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