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 Rajiv 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.
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