This would be a short take on the Income Tax department and a recent news article and implications for the future.
The article in question lies here . Now the article itself is what is known in local parlance as an ‘opinion piece’ and seems to be written on behalf of the bereaved FII’s who do not create any long-term value like FDI does. But even then he has made few quite good points. It is known that FII’s prop up and destroy markets based on their interests. This has made the Indian stock market much more unpredictable at least for the common-man as he never has neither the means nor the knowledge about how FII’s view companies per-se. Yes, I do agree if FII’s were not there then the possibility of today’s sky-rocketing 25,000 or 28,000 sensex but more than sure that lot of innocent by-standers have lost their savings in it as well.The only thing which probably works best is to take a long-term view of years but that’s not the topic of discussion for the day.
I do see the problem of State in the sense we need more and more revenues as we have a young, cynical questioning generation and the state/government of the day knows it can ill-afford to squander the opportunities it has for serving the people. Also it knows it can’t tax the meagre 5% of the middle-class who actually pay taxes like yours truly. He can’t touch the big poultry, farmers because the Govt. itself doesn’t provide any safety net in case anything goes wrong. Also they are a large votebank in itself which is again common-knowledge. I also don’t mind the FII’s having to pay MAT because they should pay some taxes on what they have earned in India.
What I am against is this part of the article which states
SEZs were actually meant to be “tax havens” because all taxes were exempt. But because SEZ units pay zero-tax, the government asked them to pay MAT at 18.5 per cent. A promised tax haven was “legitimately” converted into a mini tax hell.
– Arvind P Datar, Senior Advocate Chennai High Court.
The reason for that is very simple. If I were a small, middling or large business and want to come to India, if nothing else I would like to have a stable tax regime. I would like that I would get back my investment before I start paying tax. As have shared numerous times before on the blog itself, tax exemptions of such nature happen not only in developing countries like India and other countries in South-East Asia but countries all-over. So, if India were to really go ahead, I would say we could tighten the screws on FII’s a little but loosen on FDI’s a lot. Have checks and balances that ensure that money being bought into the country is actually being used to create some long-term asset which will be of use to the country and give more depth to Indian Industry and Commerce.