Sodexos for middle class? They may work better for the poor

by R Jagannathan

In the fast-shrinking world of middle-class tax breaks, there is this little thing called Sodexo: using a provision in the Income Tax Act that says food provided by employers to staff will not be a taxable perk, companies have been showering Sodexos on employees like confetti. Another brand in the same category is Ticket.

Sodexos and Tickets are essentially an alternate currency - but one that only buys food items. You could call them food stamps for the relatively rich - and they are tax-free if given out as part of your pay package up to a certain limit. They come in small denominations of Rs 10, Rs 20, Rs 25, Rs 35, and Rs 50.Till about five years ago, they were never really popular, given the fact that carrying them around was a nuisance (a Sodexo packet worth Rs 3,000 can be as bulky as a wad of 100-rupee notes worth Rs 10,000 or 500s worth Rs 50,000. Paying for food in restaurants one meal at a time means lugging these wads around for a long time.

However, the arrival of big-time food shopping in malls like Food Bazaar, Star Bazaar, HyperCity, Spencers, and Nilgiris changed all that a few years ago. Reason: suddenly it made sense to take a tax break while dumping the entire bunch in one shopping binge. With a wink and a nod, some malls also allowed you to buy non-food items on the sly with Sodexos.

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They did this not out of the goodness of their hearts, but because food margins are low, while margins on, say, shirts, may be 50 percent. This makes the 2.9-3.4 percent commission payable by retailers more palatable.

[caption id=“attachment_274177” align=“alignleft” width=“380” caption=“At a time when money is going electronic and plastic is on the rise, carrying wads of alternative currency is an anachronism in the urban milieu. Pic: Sodexo”]  [/caption]

Especially since handling Sodexos means counting them slowly at payment queues, irritating customers and cashiers alike, accounting for them separately, and claiming the money from the Sodexo and Ticket companies at a later date.

But from January this year, retailers suddenly started saying no - partly because Sodexo wanted a hike in commissions, and partly because the taxman wanted spends on food and non-food separated. The economics was going awry.

Now, it seems, they are coming back. According to a BusinessLine report, Spencers has begun accepting them, and Food Bazaar of the Future Group may also follow suit.

However, there are good reasons why these instruments are outdated:

One, at a time when money is going electronic and plastic is on the rise, carrying wads of alternative currency is an anachronism in the urban milieu.

Two, the cost of servicing these notes - considering they can be used only once - must be enormous. The Reserve Bank prints currency that can be used several times before it falls apart. The Sodexo is a waste of paper.

Three, Sodexo as an urban middle-class perk used in malls is misdirected - and also inconvenient. A plastic version of Sodexo - like a credit card - would be better, but Axis Bank, which launched one some years ago, abandoned the experiment as not worth the effort. Obviously, the whole idea is outdated.

Four, the hassle of lugging a bulging wad of paper cannot be understated for both malls and mall-rats.

There is, however, one place Sodexos could find a ready use: food stamps for the poor. Rural Development Minister Jairam Ramesh is already thinking of paying part of the NREGA money to workers in kind : rice and wheat. Then there is the Food Security Bill coming up this year.

All he has to do is make Sodexos and Tickets work in the public distribution system and give India’s poor them their daily share of Sodexos.

In the urban retail space, mall managers look down on Sodexo-wielding middle-classers. In the rural hinterland, a Sodexo would be treated with greater respect than ration cards.

Over to you, Mr Ramesh.