Thursday, 9 July 2009

IT Industry - Stop begging for favours

One of the provisions of the Indian budget presented a couple of days back is to extend the income tax holiday to IT companies This is an annual ritual. The STPI scheme under which this tax holiday is enjoyed was supposed to expire sometime ago. Every year the industry clamours for its continuance. And the government accedes.

The Indian IT industry does not pay the full income tax in India. This is a completely wonky situation. They operate in many countries in the world, most notably in the US. The tax laws are such that they pay taxes in every country they operate in. The only country in the world where they don’t pay is India.

Businessmen have no shame when they clamour for sops from the government. Moral and ethical rationale have no place in this argument, it appears. The same businessmen bemoan the fact that the fiscal deficit is huge. Why will it not be huge when everybody wants tax sops.

Corporate income tax is the largest source of revenue for the government. And one of the most profitable of industries in India does not pay income tax. Now why do we moan about no tax on agricultural income. Why do we shout on the unsustainable fertilizer subsidy. There is no greater moral vacuum than the IT industry getting tax exemptions. The usual arguments are presented – its an export industry, it creates employment, it needs “support” against foreign competition, blah blah blah. I am not even going to dignify this with demonstrating the utter illogic of these as justification for sops.

The government should bite the bullet and treat the IT industry just like any other industry. And the industry should hang its head in shame for continuing to clamour for tax exemptions.


raghavendra kotla said...

I am not very much sure, whether I can compare this situation with reservations implemented in our country after attaining freedom. Reservations were sought and implemented through constitution for few set of years to correct the social situation existed at that point of time. Similarly IT companies were given these tax sops initially by government to make them competitive/increase exports/support initially. But now political parties to keep their vote bank in tact, are continuing the reservations in the same crude form (irrespective of economic status)until now, celebrating diamond jubilee. I think similar situation with these tax sops to IT companies, there is no true need for them now, but lobbying by million dollar companies making the government to extend from year to year. What was a need in the past is becoming right/privilege after some years. How to correct this system..?

Ajay said...

Totally agree with you Ramesh on this one. And the longer it takes to rectify this, the more difficult it gets.

le embrouille blogueur said...

Wow .... was completely ignorant of this ....thanks for educating the common man like me .....great post ...and shame on you IT industry big guys !!

Ramesh said...

@ Kota- You are absolutely right. In fact I wrote exactly the same comparison and deleted it as the post was getting long. Completely agree with you

@Ajay - Hopefully at the end of this year, they'll finally do it

@blogueuer - Only Narayana Murthy and Nilekani have had the courage to say this is wrong - and they were soundly criticised by their peers for opening their mouth.

Anonymous said...

I was thinking that it was okay since IT pays taxes in the countries it operates in. If my income was taxed in both India as well as US, I would be left with approx 30% of my income. That is the logic I am applying for the IT industry. Is it valid?
(Excuse me if I sound like a dummy, I am using my brains after a real long time. ;-) )

Ramesh said...

@thoughtful train - Valid comment. The IT industry pays tax in a country for only that portion of the work that is done on shore. As you know,the bulk of the work is done in India; so on most of the profits they don't pay tax.

But even if they were taxed on bulk of the profits in say the US, there is no rationale for paying taxes abroad, but not paying taxes in the home country !

Adesh Sidhu said...

Haathi ke daant dikhane ko aur, khane ko aur. Every industry is worried for the sops related to their sector. They are not bothered about overall growth of the country.

Your are bang on by saying 'Govt. should bit the bullet'. But when, is a million dollar question.

rads said...

Didn't know IT industry was getting away with this when IT employees are the ones who slave themselves and pay all the taxes both offshore n onsite. Shame on them.

Neelesh said...

It is the fact and we have learnt to live with it. This also reminds of Dr. Abdul Kalam's words wherein He described “we are bound to follow other country laws but if something needs to be implemented on the same lines there are 101 comments passed that the same is not correct"

When would People learn and we can have the Clean for all Policies? Is it just a dream ?

Ramesh said...

@Neelesh - No; not a dream. We may be alow as a country, but we'll get there !

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