THE GOLDEN GOOSE AND THE HOLY COW

There are many things that we do not understand. God has created most of

them. Some are created by India’s finance ministry. Unlike many others, I do

not believe that the finance minister is wholly and singly responsible for all

the decisions that he announces.

One of them is the announcement that if the Indian cricket team wins the

World Cup and gets prize money, the goodies will not be taxed. This does not

make sense. In the old days, when prize money was the only income that players

would get from the game, this would have been a good move. In those days, this

money would have gone to buy new playing kits or cricket bats or even more basic

necessities. Today, that is hardly the situation. Most players are doing very

well for themselves–even excluding their earnings from countless promotions–and

hardly need the tax breaks. They are hard-core professionals and should be

treated as such. Do other professionals get a tax break when they do a good job?

If a CEO runs a profitable company, is his salary not taxed? If the finance

minister presents a great Budget, does he get an income tax rebate? If soldiers

gets killed, do we stop imposing tax on the others? Professionals get paid to do

their job.

Which brings up the case of software exports. In the last year–when things

were really bad–it had net profits ranging from 20-60% in most cases. No other

industry came remotely near that. It has grown at a CAGR of 57% in the last five

years.

And, therefore, when the top management of Infosys says SW firms should pay

income tax, I agree with them. However, in general, industry disagrees, as does

the finance ministry. And the exemptions continue.

One is not sure why. The industry is today 20 years old. It is no more a

fledgling, but a global power and role model for other countries. It makes huge

amounts of money. It does not have extremely long gestation periods for

investments to bear returns.

Why, then, should it get benefits that others don’t? If there’s a logic

in that, it is elusive. Or is the greed disguised as logic in the clamor of

those who want tax exemptions to continue till the Year 2009?

An argument is that since the government had announced an umbrella for a

period of ten years, it will lose credibility now if the provision is changed.

True. Stable government policies are a great thing to have. But I have put money

in my PPF account at a rate of 9% for 15 years. That interest has now become 8%.

That makes a huge difference over 15 years. If I, as an ordinary citizen, am

subject to the vagaries of governmental decisions, what is the rationale for

consistency at other places?

These benefits to the software sector are even more difficult to digest if

the neglect of the hardware sector is taken into account. All computer

peripherals and components continue to attract high customs duties. Today, there’s

a 35%-odd customs duty on imported components and a 16% excise duty on

computers. And that makes the machines expensive. Are we supposed to only help

the rest of the world computerize itself using our brainpower? Is there no

obligation that we have to spread the use of computers in our own country? How

come there are no attempts made to make hardware cheaper? That does not make

sense to me... There are some itsy-bitsy benefits like tax exemption for

preloaded software and some concessions on capital goods import. But all in all,

the budget is a huge letdown for hardware.

And if that weren’t enough, cybercafes and computer education companies are

going to be slapped with an 8% service tax.

Internet service providers were already in the service tax net. For the

not-so-well-off, the cafes are a way of being a part of the IT world. Education

has made the software industry what it is today. And access to the Internet is

the lifeblood for the future... and then we talk of making the country IT-savvy.

Sorry, I cannot understand this. I do not even want to try. Let us provide

the world with great software at cheap rates. Let us tax our future to death.

Remember the tree that gave the axe the wooden handle and then got chopped by

it? It is clear that there’s a SW bias. And that’s not fair to other

sectors. While one happily supports no tax provisions for software, it would be

better if other sectors were not ignored. There’s no need to make the Golden

Goose a Holy Cow that cannot be taxed. Software exports can be and should be

taxed... as are all other exports.

Shyam Malhotra



The author is Editor-in-Chief of Cyber Media, the publishers of Dataquest.