NO FBT ON ESOPS PLEASE: INDIA INC TELLS FM

Fringe Benefit Tax (FBT) has been a bone of contention among companies ever since it was introduced in 2005. The latest setback is the FBT that corporate and employees have to pay on their stock options.April 2007 was a busy month for Partho and other members of HR and Finance team at Spicejet. All employees, not just top management at this airline firm, were offered the employee stock option scheme. For Partho it was a chance to strengthen the staff's commitment to the company.“ESOP programme should be designed in such a way that the employee sticks with your company, and he performs so that his stock performs, CFO Spicejet Partha Sarathi Basu says.For many employees like Deepa, it means that 30 per cent of their total compensation would now come from ESOPs. But the management of Spicejet is worried. A big portion of this employee compensation will soon be lost because of FBT. FBT today is levied on 33 per cent of stocks offered and many companies are choosing to pass on this burden to its employees. Moreover, employees get no tax breaks after paying FBT. Many like Spicejet feel this would hurt employee retention.“If a significant part goes off as tax, then the ability to reward an employees of every rupee spent goes down significantly, and that's an area of concern,” VP- HR Spicejet Surajit Banerjee says.The other anomaly is that since FBT on ESOPs are calculated on the difference between the grant price and the market price at the time of vesting, not selling, many employees have lost out more money in taxes with the recent stock market meltdown. NIIT technologies is one such company.“Tax has been paid and they have lost the money. So this volatility has really taken the basic advantage of paying FBT at an exercise price,” CFO NIIT Technologies KTS Anand says.

Partha's appeal to FM: Honourable Finance Minister, Please treat ESOPs as an investment and do not tax FBT. If that's not possible, please soften the rate of taxation and finally charge FBT on actuals, and not at time of vesting by enchasing of shares. – www.ibnlive.com