All the while intellectuals like Muthry have been shouting at the top of their voice on this issue. At least now there is press coverage on this. Nation building needs money. More so when the tax base as miniscule as in India. In US per capita income tax payout is around 3000 dollars. In India that is less than 300 Rupees. That explains why US can have that kind of infrastructure in terms of freeways, airports etc.
Coming back to IT companies in India.
They pay no tax. They say that they are the best. If they are the best against whom is the government trying to protect them with tax sops? Why do ordinary Indians allow these IT companies to exploit the poverty of India. Why not take away that tax sop and give the money collected to rural india rejuvenation. Imagine the tax INFY would have paid had it been a manufacturing company.. It is projected that IT exports from Karnataka last year was in excess of 11 billion dollars. Assuming 30% profit margin ( You have to be a moron to make 30% profit in IT, otherwise you make more ) 3.3 billion dollar of profits or nearly 1.1 billion dollar of tax money.. Imagine 5500 crores rupees. How much development work could have been started…
Wait there is yet another problem with the tax exemption. When I studied finance, I was told to check the debt equity ratio of a company to test the health of the company. Higher the debt to equity ratio poorer the company health. Ratio I was taught should be ideally 1 ( this is 1990, when India still had CCI etc.. now this number may be different) I asked my prof why should the debt equity be 1 in case if debt is bad. He told me a golden secret. The interest you pay against a loan is tax deductible but dividends are not. So it is better to have some debt to do good tax planning. Incidentally taking debt reduces the cost of capital so that returns can be realistic.
Cut back to India. All the IT firms have zero debt. They do not need debt because they need no tax planning because they dont pay taxes. And since the debt component is missing the cost of capital for these firms is higher. Debt has an effect of putting hold on owner’s tendency to chase super profits. In the absence of debt what we see in Indian IT companies is mad lemingo rush to declare higher and higher rise in profits. In their quest to up their sequential growth they now do not care about what they do. They just want to do more of work what they did yesterday. With the tax holidays they just have unbridled party for indulging in infinite greed!!. Infinite Greed just shifted from Redmond to Electronics City Bangalore. Infinite Greed knows no nation building and certainly no national anthem
