The festive cheer arising out of corporate offices this season may be somewhat smothered by the fringe benefit tax, which has to be paid on corporate gifts.

However, the manufacturers of favoured gift items -- such as televisions, home appliances, and watches -- put up a brave face, expressing hopes of only a minimal impact.

"Companies won't stop giving gifts, but they might cut down on the expenses by 10-15 per cent," said Shivani Powell, director, Selectives India, which specialises in corporate gifts.

Ravissant -- a luxury and lifestyle store that caters to Taj Hotels, Apollo Tyres [Get Quote], East India Petroleum, DCM Shriram -- expects a 40 per cent drop in business this festival season.

• Everything you want to know about Fringe Benefit Tax

Usually, Ravissant generates 10 per cent of its total revenues in the festival season. The store says many companies are planning to do away with employee-related expenditure that attracts FBT.

Corporate gifting is a relationship-building tradition and firms will have to weigh their options before deciding on the issue. Havell's employees get a gift voucher on Diwali and the practice, according to director Anil Gupta, is likely to continue.

Lack of clarity in the industry about FBT and its impact on business still exists, a Titan executive said.

LG Electronics, however, remains unfazed. It expects its corporate sales to increase by 50 per cent this year to Rs 150 crore (Rs 1.50 billion), with festive season sales expected to fetch the company Rs 45-50 crore (Rs 450-500 million).

"There will definitely be an impact, but we don't expect FBT to deter companies from buying gifts," said Dhananjay Chaturvedi, product group head, institutional sales, LG.