ASHWINI A. writes from Bangalore: With the Union Budget less than a week away, all kinds of lobbies and special interest groups are trying to swing a better deal for themselves before P. Chidambaram stands up to deliver his mandatory couplets from the Thirukkural to a captive parliamentary and television audience.
With Olympian athleticism, FICCI, CII and ASSOCHAM are simultaneously bending backwards and falling at the feet of the Union finance minister. The business channels have despatched idle OB vans dressed as budget caravans to catch the aam admi‘s pulse. And the newspapers are full of wishlists.
Like Chidambaram cares!
Call it the February Fever, but it is on.
Suddenly, the Captain Haddocks of INS India, who are otherwise quoting chapter and worse (pun intended) from the Milton Friedman school of economics, and hectoring us against subsidies, waivers, support prices, regulation, and votebank politics are talking a strange new language.
The sharpest suits in North Block this season belong to the Information Technology (IT) geeks.
With the 10-year tax holiday for the IT sector scheduled to come to an end next year, the industry’s representative body NASSCOM is working the phones, schmoozing the babus, churning out status papers, and gradually pumping up the volume seeking an extension of the tax breaks beyond the sunset period.
Yesterday, it fell upon Infosys board member T.V. Mohandas Pai to do some late-over slogging. Deccan Herald quotes Pai as making these salient points:
# The STPI (Software Technology Parks of India) scheme which gives the tax breaks has benefitted the country like no other since Independence.
# If the STPI scheme is not extended beyond 2009, it could lead to India losing out to competitors like Philippines, China, Eastern Europe, Mexico and other countries, which all provide tax holidays.
# The IT industry has created two million jobs. The current annual estimation is that it creates 430,000 jobs for the “educated middle-class”.
And, as if issuing a veiled “Extend the tax holiday again, or else” threat, Pai says that the “educated middle-class” who are employed by the IT industry constitute a “very large lobby” and “a vocal class”. In other words, they could get very angry if the STPI scheme is not extended.
In other words, Chidu mama, they could vote against you and your party.
It can be argued that this is how big money talks; that this is how lobbying for a cause—using words and weapons to get your point across and get what you want—is done. But there is a brazenness about Paispeak, and fans of Pai, not quite a sultan of subtlety in the best of times, should concede he exceeds himself here.
How, for instance, can we miss the unmissable irony of those who have enriched themselves several times over arguing for special treatment in the name of the “educated middle-class” while decrying the special treatment for the hundreds of millions of their countrymen who require the props more than they do?
And, then, there is the not-so-subtle wordplay. Yes, Philippines and Mexico provide a five-year tax holiday while China has a three-year tax holiday. But do any of them provide a 10-year holiday as India has? Pai doesn’t tell us. Do any of those countries give a 10-year holiday after a five-year holiday. Pai is better off not telling us.
As Anand Mahindra pointed out in his fine speech recently, the IT industry has helped India find a niche in the world like nothing else before. It has given our youth jobs and hopes, and it has contributed to our nation’s growth in more ways than we can acknowledge. But surely, the time has come to put their money where their mouth is?
The demand for the extension of the tax holiday shows that either the IT industry wants the cash registers to keep ringing for all time to come, come hell or high water. Or, horror, horror, it shows how their visionaries did not foresee that the end of the 10-year period would come after, well, 10 years.
Here’s the funny part.
The IT czars do not spare a single opportunity to attack governments, politicians and administrators; they do not spare a single forum to scream how bad their governance is, how poor their planning, how short their vision.
Yet, the same IT czars are beating their chests, begging for tax tops, and using the “educated middle class” as a human shield—all because their net margins, already battered by the rising value of the rupee, will come down by 15-17 per cent if the tax breaks are removed. Why should that be of any concern to the nation and the exchequer? And if it should be, for how long?
Sure, as other countries get competitive, India will feel the heat. But isn’t this what “market forces” were supposed to do?
Sure, smaller IT companies require tax breaks to get on their feet. But should the SWITCH (Satyam, Wipro, Infosys, TCS, Cognizant, HCL) companies be spared the axe of the taxman?
Is the IT industry justified in asking for a continuation of tax sops when other sectors have had no benefits or largesse like the IT Industry enjoyed for as long? Should the government even consider such a demand from companies that are flush with millions of dollars from taxes saved when the US dollar hovered around Rs 46 and other benefits they gleefully enjoyed for 10 years?
Ironically, while Pai wants the holiday extended, N.R. Narayana Murthy, the chief mentor of Infosys, has come down heavily on companies asking for tax exemptions, when they did not really need one. He told CNBC last December: “After all, it is silly for the industry to say that we will be viable only at Rs 40 per dollar.”
Has NASSCOM missed taking this advice from one of its tallest leaders? Why is Pai lobbying for this when he fully knows what his boss’ opinion is? Are Murthy and Pai playing good-cop, bad-cop? Or are IT companies using the middle class to insure themselves against the rising rupee and the weakening US economy?
Should IT companies be extended the tax breaks? I think they must be asked to go take a break!
Please extend Tax holiday to the IT sector for another 100 years!
That is exactly what the IT sector wants:)
We will soon see several IT leaders painting a grim scenario on what happens if ‘INDIAN IT LOSES THIS TAX ADVANTAGE’ :) Yes, Indian IT will be non-competitive.
Chidambaram, please wear knickers inside in your dhoti and ensure that this 10-year tax holiday madness ends. People will thank you for the one good thing you did for the country. Otherwise you will go down as the ‘Devegowda of TN’.
Lampoon these beggars. They give the backseat to the National Anthem, fearing “embarassment” to foreigners, they belittle safety of employees by washing their hands off all responsibility, they shy away from contributing in cash or kind to national issues like creation of infrastructure, and go around with the “job-creator’ tag to buy concessions perenially. Ten years is a long enough time for them to stand on their own feet and help the younger ones in the industry come up. In fact, the IT industry veterans in India’s Silicon Valley should now play angel investors and mentors for other start ups. The government should turn its attention to other industries.
As long as companies like Infosys have SM Krishna like smooth talker politician on their board, nobody can stop the tax break from being extended. But selling real estate at throw away price to these companies is a criminal offense and gives the poor farmer who is the land owner peanuts for his acquired land. This is what SMK perfected during his tenure.
Mexico and China may not provide a 10 year tax holiday to IT companies. But they provide world-class infrastructure, don’t allow louts and brigands like Kumaraswamy, Lallu Yadav, Stalin, or Raj Thackeray to run riot. They have governments with spine that maintain law and order ruthlessly and with great efficiency. India should be happy that our IT sector doesn’t pack its bags and relocate to foreign shores. Every time a Mayavati or Arjun Singh tries to play the fool with a top performing company, its directors should simply pick up the phone and call Chidambaram or MMS and subtly threaten to pack up their bags and relocate to China or Eastern Europe. But unfortunately Indian businessmen lack a spine and would rather bear all the humiliation heaped on them by a moneygrubbing hellhole of an administration that simply wants to distribute poverty all around. In fact given the absolute disregard for infrastructure – a basic right in a country like India – every export oriented industry must be handed a 50-year tax hoiliday.
All the ire against employees in IT industry is ill-directed; it is these very employees that pay the tax that subsidizes a 100 things and enables money redistribution schemes like jawahar rojgar yojna.
“India should be happy that our IT sector doesn’t pack its bags and relocate to foreign shores.”
That is the funniest thing I have read in a long time.
They will threaten to do stuff – but will not do anything.
It was the same thing about leaving Bangalore. When some of them were denied subsidized lands they threatened to leave Bangalore never to return etc. They made arrogant statements, ‘if Bangalore doesnt want us so what, we will go to XYZ’ etc. So what happened? No one left.
If the IT tax breaks and subsidies are lessened there is a good chance that the playing field may change. That is not to say that government doesnt give incentive, only that they have to shift their focus from mere tax holidays and subsidized land/infrastructure to something which will spur companies to create a hunger for products and then fulfill that need.
Innovation, focus on product and true invention as opposed to services may be given a push as companies will be forced to change their focus. And IT can be encouraged to enter fields like solar energy etc. – like is happening in Silicon Valley California. http://www.nytimes.com/2008/02/17/business/17ping.html
This will pay off many times for the companies. But the government will have to help any such initiatives to sustain themselves till they build revenue generating models in the market.
The domestic market is big enough and hungry for products anyway. Of course re-directing normal IT tax breaks may upset the applecart of some current giants – so what? They have done their good work in the old scenario. For real progress it is time the Indian IT industry grows from being mere sub-contractors to real producers. And that may mean the current set of players who can no longer think beyond their established operations may have to make way for new ones.
Then why don’t you guys relocate to Mexico or China or even The Philippines?:)
We are only saying the IT Industry has to pay tax just like any one else! I am happy to note that IT employees are paying their taxes–they are my heroes!
The focus should be on reducing taxes in every sector of the economy so that people have more money to spend instead of the government. Instead of ending tax sops for IT, the Govt. should start announcing tax sops for other industries too.
In any case, the law has to be enforced equally. No special treatment for IT.
Ground reality is that all the big IT companies have made preparation to move into SEZs so in anycase they well get another XXX years of tax benefits. The small guys cannot afford the rates being quoted by SEZ developers and cannot develop their own since it requires huge investments (min 25 acres etc etc). The rational thing to do is extend the benefit for XX more years to small companies only.
Sops to IT sector like tax holiday, land at concessional rate and scores of such benefits are over ripened. There should be an end to it. If manufacturing industries do not have such benefits why it is given to these blue eyed boys. Software companies are creating a seperate reservation system. Let them compete in the market like that of other industries and prove their worth.
‘India should be happy that our IT sector doesn’t pack its bags and relocate to foreign shores.’
And do what? Enslave the people of Mexico to start providing cheap, third rate contract software services? And use the first class infrastructure of Mexico?!
Our big IT sweat shops tried to do something similar on a small scale. The were illegally cornering a majority of L and H work visas to the US to use as a subsidy. To misrepresent facts to get the visa and then misuse it against the terms of the visa. Couple of American senators had to finally intervene when this was found out. And they actually wrote letters to these companies warning them to refrain from such behavior. Which they would have got away with scott-free in India.
Talk about getting used to getting away with anything…
A newer article. And this is the general impression about our ‘heroic’ labour shops:
Guess who is on the top of the list of the visa abusers?
The visa issue is irrelevant to this discussion. The law of the land wherever a firm operates is inviolable. Anyone who thinks otherwise must bear the consequences. If a company – anyone; Indian or otherwise – wants to game the visa system – then let the law come down on them like a ton of bricks.
What we have in India is decrepit, thuggish, loutish, shortsighted, stupid, ignorant, and uncaring administration. For decades the Congress and Congress offshoots have placed short term gimmickry at the forefront and made a mess of basics, education, healthcare, infrastructure. Even with all the economic prosperity being brought about by the few bright islands of excellence, the UPA and its stablemates don’t want to assume any responsibility for further growth. Otherwise can you imagine the new Bangalore airport that has been in planning for 20 years now, still doesn’t have any access roads at all? In Madras the PMK and DMK are delibarately and coldbloodedly putting off the airport expansion so that they can corner all the surrounding land (to sell it to the AAI). This is the sort of behaviour that Indian corporates if they had the spine should not put up with. Even the people, we, know no better. We keep electing thugs and louts like the Gowdas, Thackerays, Lallu, Karunanidhi, Mayavati and Co., over and over again, being satisfied with a few crumbs, free TVs, saris, lungis, or a couple of bags of rice thrown our way. In the circumstances, the only option to force the government into line is to threaten to move out not from one state to another but out of the country all together. Why would one want to move out of Karnataka to Orissa? Or TN to AP or Maharashtra? Threaten to move out of India to Mexico/Canada/China and it will work for sure. Watch Chidambaram, Sonia, MMS, and the other coots jump and scramble. The regional louts of course will behave as if nothing happened. But who cares for them anyway once you have the Delhi types themselves dancing to your tunes. This sort of apathy is criminal and unpardonable. Let’s see who is the first to move out. Now the guy who runs Vedanta Resources an NRI in the UK wants to set up a US style university with an endowment of $1 billion in Orissa. This would be a great way to revamp university education in India. But what is the government doing to support this, when China is planning to set up 100 MITs/Stanfords over the next 20 years? Zilch. Every two bit thug of a politician is trying to extract his 10 paisa worth of vasool and mamool from the enterprise. Should Vedanta put up with this nonsense or simply take the project elsewhere?
Please dont confuse subsidies to tax breaks. Tax breaks to growth industries do have positive outcomes for government revenues. Has anybody calculated the stamp duty collected by the government for each property sold/leased? What happened to the tax collected with each bike/TV/car sold? What about income tax and minimum alternative tax? what about excise, service and VAT?
I request our super-intelligent author to do a better research before ranting butter naan-sense. India Inc on average pays 19% as tax, the lowest being a large petro-chemical company (go do the home work). Or please go to Penya or Hebbal industrial area to ask non-IT entrepreneurs about their corporate tax rate?
One more thing – Milton Friedman was never a fan of corporate tax. Go read his last few speeches available on the web.
Kayakave Kilasa. Your family employs a domestic help, right? so you a slave driver?
Vedanta…and university?? Ha, ha, ha…how can people be so gullible? Ri Kaangeya, solpa aa company credentials bagge thilkoli. Orissa nalli University na…ha, ha, ha. Clue: Orissa is a mineral-rich state. Many hungry companies are making a beeline to this state. And to buy local people and support, many TALL promises are made. Ashteya.
We dont. How did you assume that :)
And as such I am not saying that the current IT sector has not done stellar work for the nation. And the initial sparks were indeed provided by some policies of the government and the situation which existed at the time.
The things is how to take things further. If we intend to stay a back office or back kitchen for others providing service leveraging on human labour – we aren’t really moving towards what is really possible. And the existing ecosystem will make it hard for smaller innovative companies to start up, attract talent, retain talent, create a need and deliver, reap the rewards of their work, grow, move their operations to a larger scale etc. In fact this is indeed how it is in a place like Bangalore. Where is the Microsoft or Google or Yahoo from Bangalore? We have all the talent now, the youth with the skills – IIT Btechs in computer science, electronics, electrical and mechanical now consider doing something here instead of rushing to get their MS or MBA.
Propping up existing individual interests by continuing to provide tax breaks and other sops may not be the optimal way going forward. It may seem disruptive to say this, but to gain something may be lost in the process.
…and, we need an MIT or a standford yes. But vedanta university – please give us a break.
Hosa-Belaku, and Anonymous Guy seem to be of the classic kuayn mein mendak aka frog-in-the-well variety. Absolutely understandable. The two of you are in danger of expressing any lofty vision whatsoever. The problem with people like you is that you can’t but talk – so full of fancy words like “disruptive”, large-scale operations etc. while in reality you are simply full of it. Anil Agarwal is a man who chose not to listen to small minds and instead went ahead boldly to make his fortune. Vedanta University hasn’t hired CPWD to plan and build its campus (like India’s MEA is planning to do for its proposed new HQ). It has hired Ayers, St. Gross – Baltimore firm that serves university campuses – http://www.asg-architects.com/story/clients/otb/campusPlanning/cp_vedanta.htm
In India we have only one true University – BHU. Annamalai University was meant to be one, but hasn’t kept up with the times. Let’s hope Vedanta with its $1 billion endowment sets the tone for a new class of real universities.
In fact more than simply tax breaks entire cities should be turned over to IT companies. Infosys can certainly do a better job of running Bangalore than Gowda and gang of louts. Since the IT sector has been an efficient user of resources, it is entirely justifiable to give them land at cheap rates. How long? Why not indefinitely?
And ad hominem attacks lead you nowhere.
The vedanta thing you are pushing – it is more irrelevant to this topic than whatever we said was. Maybe you can bring such things up in a thread about godmen or ravishankar.
I was warning you to look for motives —you saw red, and so did not understand the gist of what I said. As the mineral sector and the aluminium major Vedantha Resources, is extraneous to this discussion on the IT sector, I will not take it upon myself to educate you on it. Clue: Quote Kaangeya, “Went ahead …to make his fortune.” Unquote.
Bringing back the blog post’s direction to theIT sector, I feel continued support to an able IT sector would act as a crutch that it would lean on, making it dependant forever. The temporary “stick” (ten years tax holiday) was enough to keep it’s back straight and help it walk ahead. Now it time for the IT sector to discard the stick and walk without help.
Do you know what is meant by ad hominem? The least you could do (instead of lounging in your armchair and reaching for the latest control-permit-license Raj leaflet) is to click the link I have posted and read the page on ASG, Vedanta’s architect. Try it this time. It’s not hard.
Vedanta is very relevant to the discussion because it is about how the government through its incompetence, apathy, corruption, and shortsightedness, levies an indirect tax on successful enterprises that are interested in getting ahead. And that is why the IT sector, a successful international-scale competitor should be given permanent tax breaks, not to help them compete in the international markets, but to compensate them for putting up with louts, thugs, and crooks who we the ignorant masses elect to power. In no Indian city can a service sector employer expect the public sector (that dominates infrastructure) to transport its employees safely. So the tax break is meant to help with that. When a Madras based company decides to host its foreign collaborators and Karunanidhi and crooks of sons decide to organise some rally and foul up the Marina beach, the tax breaks help defray the costs of flying the foreign collaborators to some other city to keep clear of the stink. When hardworking honest entrepreneurs are forced to pay bribes for essentials while politically connected louts are free to set up any business they want (notably educational institutions) the tax break helps defray the cost of bribes. When you have a spineless milquetoast for a PM – MMS – who can’t enforce law and order in India’s premier city Bombay, tax breaks help pay for the cost of private security. And that is why Vedanta is relevant. Ignorant as you are I give you the benefit of doubt and will not tell you about what Vedanta Univrsity is about.
One never thought about this. If IT companies are owned by some Political parties, then, they need not audit their account, need not show their profit & need not pay taxes like any common man! How rich is the CONGRESS party, do they pay tax. If a common man has a KNOWN salary of over 1.5 lakhs he has to pay tax as he has no money to claim exemption by saving!
I am very happy about one thing. NOT EVEN the IT sector will agree with the reasons listed by you for the tax break!Ditto for Vedanta and its relevance to IT sector and tax sops.
Well-known Kannada proverb: “Malagirourna aebas bahudu. “You can awaken a person who is asleep. (Not someone who is closing eyes and pretending to be in slumberland) Sweet dreams!
Boragallina mele neeru suridhahaage.
Kongayya paapa nidhe maadli bidi.
10 years of holiday is enough. Now start working. I meant pay the f#$%in tax from now on. Packing bags is not the reality, Its just a threat.