ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Collection Trends, Classification of Expense Heads and Avoidance of Fringe Benefits Tax

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.

The present article is a partial summary of an empirical research study on fringe benets tax conducted by the author on sponsorship from the Central Board of Direct Taxes, Ministry of Finance. The article summarises the results of advanced data analysis and statistical tests of the research report. This follows another article published in EPW (16 August 2008). The views expressed in this article are the personal opinions of the author and do not represent the views of the Government of India.

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