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The government's decision to impose a 30
per cent tax on fringe benefits is all set to take its toll on
salary hikes in the next couple of months.
Many companies are
contemplating changes in the coming increments to mitigate the
impact of the tax, according to Rajeeva Kumar, executive
director of Omam Consultants.
"Most fringe
benefits go to senior executives and the companies will now look at
rationalising the perks of top executives," he said.
The
impact is likely to be felt more in industries that are currently an
"employer's market" -- sectors that are facing no shortage of
trained manpower.
According to Pandia Rajan, CEO and
managing director of Ma Foi Consultants, engineering (except
automobile and automobile components), consumer retail, oil and gas,
advertising and the media can be the sectors. "The passing on of the
fringe benefits tax is possible only in such markets," he
said.
Liqwid Krystal CEO Anand Adkoli said: "The employees
would certainly take some of the burden. The fringe benefit tax
might result in smaller take-homes and employees may not see the
full raise."
Added Indus League Director (Finance &
HR) Uday Kumar: "Companies would try to adjust a part of the impact
in the annual increments."
Even the Confederation of
Indian Industry has said that there is a likelihood of the burden of
this tax being passed on to employees in some form or the
other.
At the moment, companies are trying to figure out the
hit they will take because of the tax. The government, too, has not
indicated how much it is hoping to collect from the tax. But
companies agree that the tax burden will be substantial and one way
of dealing with it is to share it with employees.
Maruti
Udyog Ltd, for instance, offers free foreign vacations to some top
executives as perks. Under the new tax regime, the company will have
to pay a tax of 30 per cent (33.66 per cent after a ten per cent
surcharge and a two per cent education cess) on the entire money
spent on such packages.
"We are analysing the situation
and will take steps accordingly," said SY Siddique, Maruti's chief
general manager (HRD).
Companies are also of the view that
perks that can be traced to employees individually can see a cut
once the fringe benefit tax comes into force.
In
particular, the axe can fall on contributions to a superannuation
fund and scholarships to the children of employees as the entire
expenditure on these heads attracts the fringe benefit
tax.
"The elements that might need to be considered for
restructuring of salaries would be contribution to funds and motor
car expenses. Both of these should be taxable in the hands of the
employees and not the company, since these are more individual
expenses rather than as a group," said Mohandas Pai, director, CFO,
head (finance & administration), Infosys
Technologies. |
