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Expats' hiring to suffer after higher tax on super-rich

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The Economic Times
10th July, 2019 08:23 IST

KOLKATA/NEW DELHI: The additional tax on the super-rich announced in the budget will impact the hiring of expats by India Inc., said recruiters. The challenge will be stiff in the case of those from nations where the highest tax rate is lower than India's or where the employer is picking up the tax liability, they said.

In some instances, candidates are seeking to renegotiate packages that had already been agreed to factor in the change, headhunters said. Expats are an important source of senior talent across sectors including consumer, automotive, manufacturing and IT, with executives paid upwards of Rs 5 crore annually. The maximum marginal tax rate on such incomes is now 42.74%, up from 35.88% before the latest budget.

“The attractiveness of India as a destination for talent could take a beating because compensation in hand is important for candidates. Expats want their post-tax earning protected. Hiring expats can be a challenge, post the proposed surcharge,” said K Sudarshan, CEO at EMA Partners International in India.

R Suresh, founder of boutique search and consulting firm Insist Executive Search, has been in the US for the past two weeks, trying to close two India-based roles. One of them, a European chosen as CEO of a large manufacturing firm, had agreed to a package of $3 million — $1.5 million as the fixed component and the rest as variable. However, the tax rate in his home country is about 35%, so it's back to the negotiating table. The candidate is seeking a higher compensation package coupled with long-term protection.

“'It’s one thing if the taxation rate in the expat’s home country is higher than the highest rate in India now. Otherwise, if it’s tax neutral or less than India’s current highest tax, expats will demand more,” said Suresh, adding that most expat packages are over Rs 5 crore. In the bargain, firms will end up paying more.

The other candidate — business development head for an agro-chemical company — is a US citizen who had agreed to an annual package that will exceed Rs 5 crore. In this instance too, the hiring company will need to shell out more.

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