Nobody contests that industry has to pay taxes. But industry also has to survive, earn and boost business sentiments in the process. If that is not happening, it is due to the Government's faulty and fickle policies
Investors feel India is an unstable destination, where laws, particularly relating to taxes, are changed on bureaucratic whims. If the country is serious in boosting the investment climate, it has to have a stable and sensitive system. India has the capacity to draw billions of dollars but policies that harass foreign automobile players, for instance, on the allegation that they “evaded excise duty payment”, is changing the global perception. It is true that car makers paid less excise duty than the tax officials are demanding. But it is not the case that they realised more and paid less. They had reduced prices to below cost in order to sell slow-moving inventory.
Many companies, including the indigenous Mahindra and Mahindra, are cutting down production of utility vehicles amid slow-down in demand. So has all other car makers — Maruti Suzuki and General Motors, and brands like Honda and Mercedes Benz. To keep the sales on, some of them reduced prices and paid excise duty accordingly. This is what logically they should have done.
But the tax men found this unacceptable and are now forcing them to pay the duty as per the ‘original price’. This is creating confusion among the manufacturers. It is creating a perception that the era of liberalisation in India is over. The Government is behaving in a harsh manner. The business community feels that all this is a costly distraction for an embattled sector. It is further likely to turn the sentiments against the country.
The car makers were invited to create a global manufacturing hub. Many moved their production centres to the country on the expectation that it would be a cost-friendly economic destination. Together they have increased exports to 29 lakh vehicles in 2012-13, up from eight lakhs in 2005-06. Should they be penalised if they adopt a market-friendly approachIJ
The issue is not limited to them. It is creating confusion among global investors. The tax officials’ approach is that the manufacturers can sell at whatever price they want to but they have to pay excise duty on the normal price. The argument is: It’s the choice of the car makers to sell at a lower price. Why should the exchequer sufferIJ Car makers have a different perspective, and ask: We have not realised the revenue, so why should we pay tax on itIJ The Excise Department is behaving like the mahajans who would extract every pound of flesh.
In the Budget speech of 2012-13, the Government introduced changes in the Income Tax Act, 1961, to allow the imposition of taxes on foreign companies who had purchased Indian entities, applicable to past transaction also. The controversial proposal empowered taxmen to scrutinise older corporate transactions such as the Hutch-Vodafone deal of 2007. This along with uncertainty over the General Anti-Avoidance Rule — now put off for two years —has sparked fears among global and domestic investors, who say this would choke capital flow to India. While investors need not be given hefty and undue concessions, they have to be lured. They have to be assured of a humane administration, which would help them keep their investments safe and operations smooth. But that has not been happening, and the impact is being felt on the economy of the country.
Unstable decisions are not affecting the foreign investors alone. Even domestic ones have become circumspect. Take yet another instance. Finnish mobile company Nokia’s mobile Indian unit received Rs 2,000 crore tax claim in March for the non-deduction at source paid as royalty to its parent. The company has moved the courts and is contesting the claims.
So is Shell India, the local unit of Royal Dutch Plc. It is at loggerheads with the tax authorities, who accused it of under-pricing an intra-group share transfer by $15,220 crore. Even Italian car maker Fiat was told to pay higher taxes on cars sold more than a decade earlier. There may be many more cases in the closet. The Government is run with political wisdom. The people have elected political leaders not to kowtow to inhuman and insensitive rules prepared by the bureaucrats. It is the political wisdom that shapes the future of the country. Policy makers need to act differently.
The foreign visits of dignitaries with invitation to invest, do not bring in foreign direct investment. Attracting FDI begins with the process of luring and showcasing the country. With such dismal sets of rules, the country has little to showcase. The message transmitted is different. India lives in two eras: Socialist, when it comes to realise taxes, and liberalised, when it is benefitting some near and dear one.
Nobody contests that industry has to pay taxes, but industry also has to survive, earn and boost business sentiments to do so. If that is not happening, it is because of the Government’s faulty policies. Every tax or charge is being raised irrationally and illogically. This creates an atmosphere of uncertainty at every level. One now has to pay taxes for flying by air that are actually higher than the actual fare. And, to cancel a railway ticket, one loses almost 40 per cent.