The Hindu Business Line : Corporate car sales dip amid confusion over FBT

Car sales to the corporate sector, which normally account for 50-60 per cent of the total sales, declined by 20-30 per cent in the April-June quarter, industry sources said. Mr Ankush Arora, General Motors India's Director for sales and after-sales, confirmed the downward trend in corporate sales, especially in April and May.

"Apart from postponing the decision to buy, there was also a tendency among some buyers to move from a lower medium model to a lower model because with the new cost-to-company/CTC (read that as higher tax), they could not afford the higher model," he explained.

The drop in first quarter corporate sales has compounded the problems of the auto industry, which has already been hit by the ushering of the VAT regime and the resultant slowdown in sales.

Mr M.P. Shyam, Director, Advaith Motors, a Bangalore-based dealer for Hyundai, said that generally, 35-40 per cent of the company's sales come from the corporate sector and in the first quarter of this year, it has dipped by about 20 per cent and "this is across the industry," he maintained. The IT industry accounts for 60 per cent of corporate car sales, according to Mr Shyam. Most salary packages have an element of car allowance in the form of instalment towards loan, leasing allowance or fuel costs. In the pre-FBT era, employees only had to pay the income-tax on the perk, which now attracts an FBT. The fringe benefit is valued at 20 per cent of the expense, which is taxed at 33.66 per cent, for an effective tax rate of 6.7 per cent. But this has caused enough confusion among corporates about who (the employer or the employee) is to pick up the tabs. This has forced some companies to redraw the structure of the compensation packages, thus withdrawing certain perks like a car allowance, but making the overall CTC higher. This has resulted in a sharp increase in income-tax for employees and has thrown their car-buying plan out of gear. iGATE Global Ltd has decided not to extend the car facility to new employees till the confusion is cleared, said its CFO, Mr N. Ramachandran. "We want to have more clarity on the issue," he added. In case of existing employees for whom the company has provided cars, iGATE is bearing a portion of the FBT, while the rest is being deducted from the CTC, he said.

But of course, there are companies that have decided to pick up the tax. "At Symphony, we are bearing the FBT," said Mr C. Mahalingam, Senior Vice-President, HR, Symphony Services. However, most companies seemed to have resolved the issue in July, as sales have again started showing an upward trend, Mr Arora added.

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