Aggressive tax policies sending ‘wrong signals’, says Kiran Karnik

A good article on the challenges of the Indian IT Industry

 

The Centre’s policies and adverse attitude towards IT/telecom companies are turning out to be counter productive for the sector. Besides, issues such as taxation and frequent industry-government conflicts are sending out wrong signals, said Kiran Karnik on the sidelines of a CII conference.

Karnik, the former President of IT industry body Nasscom, is now a member of the Scientific Advisory Council to the Prime Minister and the National Innovation Council.

The whole “attitude” of the Government has turned “aggressive”. It has taken on corporates over taxation-related issues, imposing heavy penalties. This has not just hampered the industry but also strained its relationship with the Government, Karnik said.

“Government policies, to me, have been very counter productive. They have been more on how much revenues come to the Government. That’s now what the Government is all about. It’s about benefiting the people,” he said.

Referring to the IT-Telecom sector, he said, “Instead of now saying, how do I promote this industry, it is now how do I milk it?”

 

Taxation

Karnik said the Government’s aggression over issues related to taxation has “very definitely” sent out “wrong signals”.

“…Very definitely. The Government has to put in place a fair tax policy. But the general perception shared across the board (by both multinationals and small companies) is that they are very aggressive…” he said.

Significantly, the sufferers of the Government’s overdrive are not the “predatory wolves” or those who have the wherewithal to challenge the I-T Department’s tax calculations in a court of law. Rather, it is the smaller companies that lack resources for such a fight, pointed out Karnik.

 

Nokia tax case

Citing the Nokia tax issue as a case in point, Karnik maintained that it is a perfect example of mishandling the situation. Nokia’s Chennai factory, once considered a show-piece unit, is now facing possible closure if the tax issues are not resolved.

The I-T Department has said in court that the company owes it Rs 21,153 crore (including penalites).

“May be the demand (made by the I-T Department) is justified. But the manner in which they (the I-T Department) went about it and the timing is absolute disaster…” he said, adding that “the only alternative” -- if the issue remains unresolved – would be “to close the factory”.

“Suppose something happens, do you think anyone will come here (for hardware manufacturing) with this sort of example…” he asked.

 

Change in attitude

According to Karnik, the problem arose with the Government viewing the industry as a mature sector that could stand on its feet.

Following the various crises, including the scams and scathing CAG reports, the bureaucracy and the Government seem to be “backing off” from supporting the sector.

Pointing out the difference in attitude, Karnik cited the example of The Philippines which has gone out of its way to woo IT investments.

“The point is, every country around the world supports the winner. You have a potential winner and you back that. Why don’t we see that here is a sector (IT) in India that can lead the way,” he asked.