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Sunday, March 4, 2007

Taxing ESOPs - RIDICULOUS!!

Chidambaram seems to have completely gone wrong on the issue of the Fringe Benefit Tax assessment of Employee Stock Ownership Plans, or ESOPs. This could be one of the most regressive steps in the disappointing Union Budget 2007-08. FM has included ESOPs in the Fringe Benefit Taxes' ambit.

ESOPs are a capital asset. Technically speaking, an ESOP is a transfer of remuneration from the company via a capital asset. They are a wealth-creating asset and FM is taxing them like income. Which canon of economic thinking can EVER justify that?? In an interview to CNN-IBN, Chidambaram said that ESOPs are fringe benefits, so they need to be taxed. Are ESOPs really fringe benefits? ESOPs are not a like a car, or a house or gardener a company provides its employees. It's much more than that. ESOPs are a way to include the employees in the growth of an organisation. It's a participatory or an inclusive way of running an organisation. Actually, what the FM has done is to tax those professionally run companies who believe in offering ESOPs. So by including ESOPs in the FBT regime, FM is penalising such companies. It's a highly regressive step, and will kill the entrepreneurial and start-up culture. It's not too late to get the FM roll back such a measure. If the media and the industry associations like Nasscom and CII put pressure on FM, he may just roll back.

2 comments:

aman said...

i don't exactly get the FBT thingy dude. do elaborate. from what i understand, the FM simply wants to tax anything that's not already been taxed! the govt can't recover it's own debts by creating wealth and so it taxes it's citizen's and companies. no soul whatsoever this time in the budget

Ashish said...

Aman,

Fringe benfits are employee benefits/benefits in kind/perquisites/perks. These are various non-wage compensations provided to employees in addition to their normal wages or salaries.
Fringe benefits generally include housing, insurance, retirement benefits, daycare, sick leave, paid vacation, social security, profit sharing etc.


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