Reality Check India

Panel for extending IT tax holiday to 2019

Posted in Uncategorized by realitycheck on November 9, 2006

UPDATE : Read the end of this post. 

I knew things would move fast, but not this fast.

A high-level committee constituted by the PM has recommended that income-tax sops for software technology parks (STPs) be extended beyond the March 31, 2009, deadline, by another 10 years.

. . .

According to the officials, the tax benefits beyond 2009 for units in STPs will be at par with SEZs: 100% I-T exemption for the first five years, followed by a 50% exemption over the subsequent five years.

 Source : Financial Express

It seems IT services companies have managed to get their existing tax holiday extended by another 10 years ! Unbelievable. Is this the scam of the century ?

Another bait and switch statement  (we Indians are getting really good at this).

The move to block more infotech SEZ approvals and extend the STP scheme will greatly benefit small and medium enterprises (with a turnover under Rs 10 crore), which constitute over 70% of STP companies

Commerce Secy GK Pillai

Wow! Really. In that case why not extend these benefits only to companies with turnover of less than Rs 10 crore ? Like in other spheres, you show us some intended beneficiary and then proceed to ignore them and switch benefits to someone else.

Remember, Infosys/TCS/Wipro/Satyam for example are not babies. Infy celebrated its 20th birthday recently. These are cash rich companies rolling in money with very little investments required for in-house research. If they continue to the kept out of the tax net, let us hear some solid arguments in favour of it. Do not point fingers at “small and medium companies” and claim you are actually helping them.

UPDATE

It appears the wheeling dealing for caste quotas in private sector employment is in full swing. We are not so naive to believe that private industry will oppose this forever. Everything is negotiable in India. Most (but not all) industry bigwigs are roving bandits and not stationary bandits.

Check it out:

Step 1:

What will it take for affirmative action ? Governement asks India Inc (read bigwigs not the small scare or new ventures)

Step 2:

Uhh, lets see. 1. We want SEZs so we can move there to get around all your rules.  2. We want to crush competition in our industry by forcing even small players to enforce quotas 3. We want you to create such an environment of harassment by government caste quota enforcement officials that it would be impossible for future competition or multinationals to emerge. 4. And yeah, we want tax holidays for 10 – 20 years.

Step 3:

Government: Cool we have a deal !

  • Realitycheck to private players. Please do not pretend like the end of the world is upon you. Employment quotas are worthless unless, they apply to all levels – dont think you can escape quotas at senior management or even at the board level. You cannot hire maintenance or janitorial staff based on quotas and get away with it.
  • Realitycheck to private players. Employment quotas are worthless without quotas in promotion. Dont worry these will come later. You cant hire a bunch of SC/ST/or OBC (will come later) at entry levels and get away with it. Every promotion, every onsite contract, every assigment must have quotas.
  • Realitycheck to IT bigwigs. It is true that your smaller competition will be shattered and you can enjoy unprecendented monopoly, tax breaks, and cash  flows. You may think that caste quotas dont affect you because you have an unproductive (bench) force of 15-25% anyway. Not! Think again. It is only a matter of time before the caste composition of your “bench workforce” is called into question. Baby, we are talking a regime not a solitary act.
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9 Responses

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  1. Shripriya said, on November 10, 2006 at 2:51 pm

    Honestly, I think imposing quotas on private companies is just ludicrous. I wonder how the services companies (McKinsey and others) will deal with this.

    I am against the concept of a government infringing on my right as a private enterprise to run my business the way I should for maximum profitability for my shareholders.

    I know of many public manufacturing companies that already well exceed the government requirements — hire a significant number of people that would fit into the reservation category (more than 60% of the employees). They do it voluntarily because that is what is best for the company and the shareholders. And, because it helps their employees, keeps the loyal and rewards them for their hard work, they have set up schools to educate their children, scholarships to fund the children and a whole host of other benefits. That’s great. They are doing it on their own. They do it because they care about their employees and they care about their companies. They have exceeded every suggestion made by the government. Perfect.

    That’s how things should work – NOT because the government forces companies to do it. In fact, here’s my recommendation. If the government does impose such a rule, re-incorporate somewhere else (Mauritius?) and move the plants out of India. Who would this hurt? The very people that the government is trying to FORCIBLY protect. I know it won’t happen, but what happens to principles??

    Hello communism! Why don’t you tell me how much I should produce, on what date and using which employees, please? Next stage – for a private company, every “project” needs to be staffed with quotas. C’mon, that’s easy, right? Let’s force everyone to know which category every other person belongs to. I think that would bring great unity into the work force… NOT!

  2. realitycheck said, on November 11, 2006 at 4:58 am

    Shripriya,

    Thanks for your long comment. You are right on all counts. The government should have no say in the caste composition of its workforce. There must be tough anti-discrimination laws, but not rigid quotas.

    The only problem, and a BIG one, is the hands of Indian business is not clean.

    Take the IT companies for example, they owe the government big time, taxes owed after the holidays alone would amount to tens of billions of dollars. This apart from the hundreds of acres of real estate acquired with the help of the government.

    The point of this post was we should be wary of the bigger private players, they may readily enter into a ‘deal’ with the government as long as their interests are furthered. This includes more tax free regimes and suppression of competition via more bureaucratic hurdles such as complying with neck deep labour laws.

    The private players too should be wary of “wheeling dealing” with the government because this is not just a one time, entry level deal. It is an entire regime that will tear their employee morale and camaraderie apart.

  3. Sharan Sharma said, on November 11, 2006 at 5:04 am

    Hi RC,
    These SEZ/STP posts have been a real eye-opener! Thanks.

    P.S – I found this kinda interesting in this (partial)context – but not for long with our cartoons at it

    P.P.S – i sent you an e-mail. Just wondering if you got it.

  4. Shripriya said, on November 11, 2006 at 5:29 am

    Good points, I agree. The worry I have is that if the IT companies cave, it is easier for the government to impose it on all companies. That would be terrible. Especially because all companies have not benefits from sops from the government.

    The IT companies may make the trade off, you are right, but they will, in the long run, shoot themselves in the foot by doing so.

  5. realitycheck said, on November 11, 2006 at 5:41 am

    Thanks Sharan,

    Yes, I got your email. Sorry, I could get around to ack-ing it.

    Thanks for those links too. Companies should be wary of investing in Bengal or Kerala despite all the sweet-talkin.

  6. Revathi said, on November 14, 2006 at 7:36 pm

    Looks like that all these moves will result in large scale falsification of caste certificates and intensive bribing of government officials by the private industry. Should be interesting to see how the situation will evolve

  7. Barbarindian said, on November 16, 2006 at 7:00 pm

    I think you are a pioneer in bringing out the scam in SEZ schemes. Rules always favor the big guys, just like gun control. Guess what, only the bad guys have guns.

    http://www.ibnlive.com/news/the-wipro-way-to-escape-taxman/26361-7.html

    SEZs provide numerous opportunities for companies to trample on their competition. Think of a company that launches an SEZ only version of itself. It is scary.

  8. […] earlier posts on the IT Tax issues ( Extending tax holidays to 2019 , Vote Bank (I) Pvt Ltd, Paging Kiran Karnik, Everyone loves a holiday […]

  9. Imagining India « Reality Check India said, on November 25, 2008 at 3:49 pm

    […] of my readers know what I think about the SEZ […]


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