Saturday, January 28, 2006

The Sodexho Story

I am motivated to write this piece in response to a comment on the post “Lunch Coupons, Warren Buffett & the Pot of Gold”. The gist of the comment was Lunch Coupons are merely a tax saving device so how does it matter if I “lend” some money to Sodexho at 0%.

Sure. But why not allow the same money as a tax-free allowance.

A company wants to provide food to its employees and instead of getting into the messy business of having a full-fledged cafeteria simply pays the employee an allowance.

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In comes the taxman to complicate matters. He insists that the company should ensure that the money is indeed spent on food. What does the company do? It approaches Sodexho to buy vouchers that can be redeemed only against food. It is a completely different matter that my resourceful kiranawala has put up a poster saying that he will accept Sodexho Lunch Coupons for non-food items as well, but will charge 3% extra for that privilege!!!!!

My point is that these food vouchers have no raison d'être.

The government allows Rs. 800 a month as conveyance allowance without asking the company to issue travel vouchers. Then why make the distinction for food?

As long as the person spends Rs.1500 on food sometime during the course of the month it does not matter what he uses to pay in any specific transaction. So long as the tax authorities are certain that a person spends Rs.1500 a month on food items why have these silly passes.

By insisting on Food Vouchers the govt. has inadvertently allowed a multinational to issue “Currency”. Also any company accepting deposits from the public at large is regulated by the RBI. Wonder if Sodexho’s books are open to such scrutiny.


Authored by Sameer Nair

39 comments:

Hanif Shah said...

A little knowledge is a dangerous thing. The author of this article does not seem to have thoroughly understood the Voucher business and based on whatever he has seen, heard or experienced, formed this opinion.

The govenments of countries around the world have offered tax sops like these to the working class wherein the employers can give a benefit to their employees through a Voucher that can be used for the specific purpose it is issued and there is proof of genuineness of expenditure.

If the allowance is given in cash both these criteria cannot be certainly met, which is why and how the business of Vouchers has evolved.

It is a different matter altogether that some outlets are misusing the norms of acceptance and companies like Sodexho and Accor which are operating this Voucher business in India, are taking tough measures to prevent this misuse.

There is a concerted effort to make all food outlets accept the Meal Voucher only for food & beverages and this is already in effect.

Allowances like the conveyance amount of Rs.9600 p.a., the medical reimbursement of Rs.15000 p.a. and leave travel allowance have already come under the scanner of the government and are likely to go sooner or later or if they do stay, they will be drastically modified.

There are very few tax breaks that the Indian government has allowed its working class and Meal Voucher is one such benefit. If this benefit was paid in cash as an allowance, it would attract tax of up to 33.6%.

Probably the author has good intention that he would not misuse the benefit if given in cash, but would he actually use it for food and beverages and if so is there a proof is questionable. There is no guarantee that the same holds good for all those who will receive the allowance in cash.

For example a lot of manufacturing companies that were hitherto giving cash allowances to their workers have converted it to Vouchers because when the allowance was given in cash a majority of the workmen used the money on alcohol, gambling, etc and the benefit never reached the families.

The intention of giving a Voucher is that the benefit will be rightly used and the benefit is intangible. Otherwise it would be just another component or allowance in an employee's salary and have no meaning whatever you called it. Like special allowance that is reflected in most pay slips. What's so special about it?

If the impression is that Sodexho and Accor are making easy money by printing a parallel currency and using others' money to fund ther business, its a BIG mistake. Because if it were true there would have been atleast 10 such companies in India doing the same business. It is a service where the average transaction value is Rs.30 but it incurs the same cost as that of a bank cheque.

So it is better to adhere to the rules and properly use the benefit rather than asking for allowances in cash and finding loopholes to misuse the benefit.

Lets thank the Government of India for keeping it tax-free and we hope that in the interests of the salaried class like us, it will remain.

Abhinav Aggarwal said...

I am a restauranteur who did not accept Sodexho for some of the reasons the author has pointed out. Not only was my money being blocked for one month (credit card companies credit our account within 24 hours) but Sodexho also wanted us to pay for being listed with them!
Abhinav Aggarwal

Ajeet Khurana said...

Hey Hanif Shah, Please visit any of the large grocery kind of stores -- D Mart, Haiko, etc and you will find that they accept Sodexo Coupons for anything -- stationery, utensils, make-up, toys, well anything. That does go against your premise, right?

Ajit said...

Mr. Hanif Shah has done a lot of home work before posting the comment. The transaction cost of Sodexho coupons or ilks and the security measures taken behind are not the ones which are publicly discussed or disclosed. Probably he is right. But this doesn't absolve them from holding the citizen's money. The whole discussion was about, why a multinational be allowed to hold the money in the name of tax saving there by floating a parallel currency of some form, where as the govt can give a tax exemption directly on the equalant amount to employees. It is obvious that a person needs to spend more than the said amount a month on food, then why not the tax sop on the amount itself, instead of funding a multinational.

Ajeet said...

Hanif Shah said...
A little knowledge is a dangerous thing.

I say: Not disclosing your vested interest is a dangerous thing.

Wanna know more, click the "hanif shah" link and you realize that he is hand in glove with Sodexho. Ha ha. What a scam!

samarora said...

A sincere and practical recommendation. Takes us back to the Accounting 101 concept of materiality - does the administrative cost of monitoring a max of 1500 rupees per month really justify the benefit. The country is full of enterprising people - I had a budding entrepreneur in my office (this was almost 4 years ago before the Dmarts of the world started openly accepting Sodexho coupons for non food items) who would discount a booklet of Rs 1000 rupees for Rs 900 instant cash since he had a "setting" with a friendly store which accepted these coupons for all kinds of household stuff like sarees and white goods.

MoCha said...

Sodexho's food coupon business is based on a system quirk and may get severely impacted if this simple improvement is taken up by the tax authorities. Given Mr. Shah's affiliations, one can understand his passionate defense.
Most ordinary people spend a large part of their salary on food and it can be safely assumed that the Rs 1500 or whatever that is allowed tax free would be spent on food. In case of people who are existing on lower than that, they probably fall in the lowest tax bracket anyway. I completely agree with samarora's point on materiality.
The general direction of tax laws in India is towards simplification. Therefore, this suggestion would probably make sense for the tax authorities.

Dhoota said...

come on yaar. The Sodexho Coupons are not really helping the common person in these days. i think shah and others can better close the shop and do some thing which will be usefull to them atleast! enough cheating others!

Anonymous said...

Hey Guys ....enough of the blame games on Hanif or on anybody else for that matter. I am a CA and suggested few of my clients to approach Sodexho for the Meal Passes. The reason being the Law which says that "either the company gives food through an inhouse canteen or directly pay the money to the outlet where your employee has gone and has taken food". Now since your or my company can not go hunting to each titsy bitsy shop where my employee is buying idly-dosa, I hired Sodexho. They take money from me and pays to outlet. Meal Passes received by the shop ensures that one of the Pass holder did visit them for Food. Sodexho is working just as an agent to pick money from one site and deliver at other.

I was on a visit to Germany a couple of weeks back and found that for all the good reasons, companies give different kinds of coupons or swipe cards to employees. For entertainment, for back to school programs, for medical benefit etc. so are Sodexho doing in India.

Nagarajan said...

Hey all,

Can u detail out the money transaction involved in the food-coupon concept between Service provider, Company, Restaurant & Employee. Also, i am looking for all the hidden charges & intrests involved in the overall process.

Thank U

kirann said...

Agreed that sodex is good for saving tax and all, but what about extra charges we pay to get things from big malls. and even our kiranawala/grocery guy will charge VAT on top of bill if i purchase thru coupons, else on cash he will not charge, why this difference?
Other major draw back is, the change remaining will not be returned!! so sure to buy useless choclates and all and consumer is in loss!!!!

Manish said...

@Ajit khurana
d-mart stopped accepting sodexho sometime last year..haiko never accepted them.
food bazar doesn't accept sodexho for anything than food items...there cud be some which do it for extra charge.
@All
i have noticed that majority of grocers and restaurants i used to visit, have stopped accepting sodexho so it doesnt have the appeal anymore as tax saving instrument if you have to travel miles to a sodexho outlet.

Anonymous said...

Dear Friends,

My company give me Accord coupan, i have never used it in hotel for food, but it helps me in other way, as my wife is not aware that my company gives me this coupan, i visit my parent once in month and give the coupan to them, as it helps them to spend on food bills from Food Bazaar, as they do not all all the item that they used to, they should start it again as it help some really needy person, as my wife does not allow me to give money to my parent i help in this way.But i think more and more shops and also docter should start taking it from elderly people.

Regards,
ADAD

Anonymous said...

Government loses - 30%
Employer loses - 5%
Shoper loses - 5%
Individual gains - 30%
(by saving tax)
Individual loses - 5% (average)
(by paying MRP for the item)
Sodexho gains - 10%

Individual means employees and most of the employees who is availing this is from IT field (means only rich people)

Regards,
Baskar

Anonymous said...

Ever wondered wat is the revenue model of SOdexo?
How is it earning Billions of dollars every year??

Nag said...

@baskar...

Apart from the company the members of the finance ministry also stand to gain from the bribes the company would pay them to amend the currency act.. as a result we have a new currency with a star.. sans Gandhijee

Nag said...

@hanif.. you must have the ethical courtesy to disclose your identity and your association with the company...

does this show the level of ethics being followed at Sodexho?

Anonymous said...

It is sad that we are allowing an MNC to print currency like this!

Recently i had a bad experience with an expired Sodexho pass.

The global policy of sodexo is that it can be revalidated for one additional year if it expires but in India once the pass expires then there is no revalidation or refund!

So imagine how much profits they are making from expired gift passes?

Unfortunately we Indians are always exploited since we do not stand up for our rights!

If my bank draft expires then i can get a new DD from my bank then why Gift Voucher from Sodexho is different?

i have decided to fight it out! will let you know the outcome in this forum.

So sodexho is a currency with an expiry date!

Anonymous said...

I have a problem of a different kind. Recently I met a rep from Sodexho who told me that they do not acquire clients from Accor as this is a global policy. Could this be true. Accor and Sodexho being the only players in the market are now not even giving the customer an option. If we take Accor vouchers we are bound for life whether the service is good or bad.
Dont we have the right of choice being customers?

Anonymous said...

Any update on expired sodexho pass?

Amit said...

@ Hanif: You're as deceptive as your Sales guys @ Sodexo who came to our office some time back and kept misguiding us to increase the amount of food vouchers given per month... Luckily our CA was smart enough to figure that out and we ended up tying up with Accor... We were forced to tie-up only because govt. offers some tax incentives. Else no one really wants to have such a feature in their salary..

BTW, i think it's the indian govt. which needs to have measures in place so that middle-men like Sodexo, Accor have no role to play and hence the middle-men margins are not passed on to the users of those devices..

Anonymous said...

Still awaiting an update on expired coupons. Why is that we have to lose out our hard earned money?

Anonymous said...

I think what everybody is talking about is purely based on the their personal experiences or understanding.

I think its a good system through which people can have meal benefit.

Why is everybody mentioning about income tax I really dont know.

Free meals and Food coupons are part of Fringe Benefit Tax and are excluded from any value calculation for the charge.

Accomodation is also one of the items covered under FBT, can anyone explain how many true claims are made for the same.

How many people claim correct Medical reimbursement with authentic bills.

navaneeth said...

Sodexho(also accor) guys are making hell lot of money by
1. earning interest for the period by which a cycle(from sodexho-company-employee-shop-sodexho).
2. Unclaimed/expired/lost/destroyed sodexho.
3. The charge which they reduce while making an reimbursement to shop fellows(don't know the exact %, if any body knows please update me).

There costs are just to print and maintain an back office.A nice way to earn money. There not many players in the market as it requires lot of initial investment to get the permission from Govt.

I am also awaiting an update on expired coupons.It is our hard earned money...

Anonymous said...

dear navneeth i think you should just shut ur garbage off and understand the business before commenting on the issues. Take a break man......

Anonymous said...

Navneeth is darn right. They make lot of money (I hv a friend who runs a restaurant accepting these). And the worst part is the "expired coupons" concept! How can our hard money become void and null? That is attrocious!

G.R.MANOJ said...

Hello guys

Can anyone please tell me , why these supermarkets are accepting these coupons only on food items as previously they used to accept on all items?

goodgiffen said...

hey..curious on the business model..some questions:

1. Is the one month credit period info authentic. Someone once told me two months, which seemed unrealistic. Also, how different can it be across retailers, i.e kiraana's, supermarkets etc?

2. Ive heard that Sodexo discounts bills by 7% which i think is too big a margin. Even 5% (quoted in this blog) seems big, since the company is already sitting on large amounts of cash and this point, in my opinion, can always be brought to the negotiation table.
3. Was wondering why my employer would pay a 5% fee to Sodexo. My employer has a cafteria btw and that apart (from the preposterous margins) the fact that it makes an upfront cash payment to the company (does it?)and the real business here is between the shopkeeper and sodexo, shoudn't encourage such fees.

4. Any idea on how the whole thing started? How did Sodexo build the ecosystem?

Rajesh Kothari said...

While going through cupboard - one of my friend found expired Sodexho PASS Gift Voucher worth more than Rs.2,500/- with validity period up to 31-12-2006. I've written an email to ask.in@sodexo.com today.

Does any one know - how to get this money back? He is not in a mood to give up.

So, all kind of suggestions are welcome - except perhaps that of going to a consumer court since effort may not be worth the loss of Rs.2,500/- or so.

Anonymous said...

means all the way we are benefiting indirectly a foreign MNC instead of our government..

Anonymous said...

Hanif Shah might have done his homework, but scored a zero on it.

Anonymous said...

Its all a personal choice. If someone like me who stays away from family and spend most of the time eating out, its a blessing fro me. I save tax as well as my daily needs are taken care off. Why the hell people are talking about how sodexo works. Everyone posting here is working for money and so will Sodexo too. Just open your narrow mind and take a look at the benefits rather than posting stupid things for which some of you don 't have enough knowledge. No one is forcing you to take Sodexo from your company. SO all those peoplee crticising Sodexo just think!

Anonymous said...

In dealing with sodexo coupons this app comes handy https://market.android.com/details?id=com.yuvera.couponcalculator

Anonymous said...

Hey! What do you know! Our man does work for SodexHo: http://www.linkedin.com/pub/hanif-shah/6/5b1/255

Anonymous said...

@All,Any idea why everyone stopped accepting your coupon w.e.f 1-Jan.I heard Sodexxo not paying to marchents.Hench the decision

Bipin said...

Lets assume sodexo prints 1Billion worth coupons and distributes and it took 30Days for them to collect the same back. 10% of the card is lost. That means for 1month period it printed 1Billion currency and floated in the market. As this is a perpetual process there is always billions of fake currency floating in the market printed by sodexo. I wonder, how did government allowed this business?
and every cycle the lost card is an extra unaccounted income. God knows if they are remitting this amount back to government?
Sodexo needs to be banned by confiscating their complete assets and arresting the top management and the officials who sanctioned this.

Anonymous said...

Buying sodexho means to force someone to buy things from the limited shops where sodexho is being accepted. It indirectly means the mall or shop who accepts sodexho does not becomes competitive and gains monopoly, which in fact affects the employees or individuals who compulsorily have to buy things at whatever price the mall or shop charges. Now if we look on darker side, more money goes directly out of India in the mask of good face. Certainly Indian economy suffers and so the citizens. This cycle, which is generated by sodexho company and accepted by our corrupt government takes our money, earns profit on no investment, take it abroad, create economic breakdown in the name of tax saving, loot India and at last breaks its backbone.

So friends its cool and good to spend money on food items, pay tax, which in turn will help us and our children and money will be circulated in our company.

Now if anyone from sodexho, who want to justify or oppose my speculation should show us - the Indian employees - its revenue generate plan.

Thanks & Regards.
Yours fellow Indian
Ta-Ta

Jack d' Ronald said...

Govt. must have vested interest in allowing sodexo. I resent waiting at store while the person ahead clumsily counts his sodexho. further it is only sodexho who wins. I lose my time and compulsion to use the sodexho even though i hate it, merchants lose there money and Govt. lose their taxes. you want fringe benefits.? let Govt. allow cash instead of sodexho at marginal tax. All win except sodexho!

Anonymous said...

Hanif Shah is a terrorist, a traitor... arrest him, kill him