Reality Check India

Just scrap the SEZ scheme already !

Posted in Uncategorized by realitycheck on January 10, 2009

I have said many times in the past that the tax holidays for IT services companies must end (see links at end of post). Must have ended 10 years ago. They are sitting on mountains of cash with nowhere to invest. Their core business of outsourcing is dependent on billing human resources. Apart from training and facilities management (buildings, gensets, travel / visa ) – there is really nowhere they can put the cash.  If you think our IT companies are much more and need cash investments, this site might be more suitable for you.

This article says that the tax holiday might have made it much easier for Satyam to cook its books.

In some ways, the tax-free status of IT companies may have allowed the Satyam promoter to cook up numbers in the company balance sheet. Had the  company been paying tax at the regular rate, inflating revenues and profits would have been that much more difficult, as tax payments mean real cash outgo. Indeed, when corporate accounts come under a cloud, investors should look at tax payments and dividends, both of which entail cash outflow from the company, as a source of comfort about the sanctity of accounts. The IT sector was given a 10-year tax holiday under section 10A & 10B. The benefit was to end in March 2009, but the government has extended it by one year.

Source : ET

Cash on books of companies requiring little investment invites corruption. 

The SEZ scheme must be scrapped immediately.  Whether it is Murthy, Nilekani, Premji, Raju or thousands of others. They must made to pay fair tax . Kicking and screaming.

Alternately, these stalwarts need to come out and clearly quantify how their growth (not profit) will be impacted if they paid normal corporate income tax.  I am sure we can use the cash for the welfare of the poor and oppressed classes. No?

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Also read previous posts on the grand SEZ scam :Nilekani Imagining India,  SEZs need to go in Goa,  SEZ Chat, PIO University in an SEZ ? , IT SEZ – Everyone wants a holiday, Minimum Alternate Tax issue, Everything is wrong with us (maximum size cap on SEZ), Panel extends IT holiday to 2019 , and more

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3 Responses

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  1. reason said, on January 10, 2009 at 1:31 pm

    actually, the ET link repeats the grand Indian media rope trick. It makes the reader accept the faxed confession as the truth and proceeds from there to show that had there been higher taxes, they wont have cooked those books.

    how many media eminences have you heard write or say there is another possibility? Stray articles in livemint or express from non-eminences obviously do not count.

  2. reason said, on January 10, 2009 at 1:57 pm

    Higher taxation could help prevent fraud? let us see. We need to expand our business. Need new hardware worth a million. Specialized hardware, needs a system integrator registered in Bermuda. Total cost is 2 million (those integrators are costly) which is duly paid and acknowledged.

    what is left to tax now?

  3. rc said, on January 10, 2009 at 3:17 pm

    Reason,

    Not higher tax. Normal tax. The infusion from these guys will bring down the corporate tax for everyone.

    As for your example, sure we have to assume the worst. You know that is the theme of this blog 🙂

    Still I dont see Satyam buying capital goods for 5000 cr over 4 years. This is the amount that needs taxing. There are industries that need such expensive hardware, I will be the first to support a tax holiday for them (manufacturing, semiconductors, etc)

    The bottom line is someone needs to explain how this tax holiday affects the growth of these giants.


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