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The Golden Goose and the Holy Cow

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DQW Bureau
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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 hardcore 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 percent in most cases. No other industry came remotely near that. It has grown at a CAGR of 57 percent in the last five years. And, therefore, when the top management of Infosys says that SW companies should pay income tax, I agree with them. However, in general, industry disagrees, as does the finance ministry. And the exemptions continue. 

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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 is 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 has 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 percent for fifteen years. That interest has now become 8 percent. 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 is a 35 percent odd customs duty on imported components and a 16 percent excise duty on computers. And that makes the machines expensive.

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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, the cyber cafes and computer education companies are going to be slapped with an 8 percent 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 life blood 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 is 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.

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