The Hindu Business Line : The taxman sings when the telephone rings

HARRY (because he disliked being called Hari) had one hand on the doorbell and the other held his sleek new cell-phone. He was having yet another conversation with yet another friend. His mother answered the doorbell and wondered rather aloud, "Do you ever stop talking on your cell?"

Swishing his mane Harry remarked, "Yup, to message". Well, it wasn't insolence. It was just that he had a way with words.

Mom asked, "Have you seen your mounting telephone bills. You know dad spends more money on your phone bills than grandpa spent on dad's education." Dad nodded.

"Mom," defended Harry, "Today we live in a world of communication. Everyone carries a cell-phone. The milkman, the barber and why even the maid has one." Dad nodded and said, "Right. But, I am not paying their bills." Harry wouldn't relent. "Come on dad, I am on easy talk. Fifty paise per message and Re 1 a minute for outgoing," There was a moment's silence.

"What about tax" queried mom, "Has the Finance Minister exempted you from paying tax?" "Tax? What tax?" asked Harry incredulously. "Service tax" said dad. "Each bill of yours contains a 10 per cent service tax. Not to forget the 0.2 per cent education cess." Harry defended. "Yeah! I have seen it in my bill. But I thought everyone pays taxes."

"Every one pays taxes" a voice sounded in the next room. It was Didi's (from the time she was a kid everyone simply called her didi, because they had grown up in Saurav dada's land). She was Harry's sister and had majored in economics.

"In this world nothing is certain except death and taxes." She was quoting Adam Smith, the legendary economist.

Harry remembered his professor once remark, "If you earn income you pay income-tax, if you spend you pay expenditure tax, if you save you pay wealth tax, and if sick of these you croak you once paid estate duty." Bravo.

"When your telephone rings the taxman sings," Harry's mom said. "And the hole in dad's pocket gets deeper". It wasn't that the lady hated gadgets. After all, she was one of the city's accomplished doctors.

"The government has already netted Rs 5,000 crores from service tax on telephones this year," said Didi. "And the year is not yet over."

She remembered reading somewhere, "The telecom revolution, in particular the mobile segment, has been a cash cow for the government.

"Despite, the growing number of services under the service tax net, telephone constitutes more than 70 per cent of the service tax collections. And this trend is only going to continue."

Harry asked, "How?" And Didi explained "The total mobile subscriber base in India is about 70 million today. The industry is adding nearly 2.5 million new subscribers a month.

"Again, nearly 800 million people in our country are outside the network of cellular phones. In such an environment, growth is but inevitable." Even Harry had to agree that Didi was sounding like a true economist.

"Things were very different in my days," said dad. "The only other phone I can recollect was the public pay phone at street corners. Boy, you had to feed them fistfuls of change." Doctor mom added, "At least there were no taxes on the call." Harry had no patience with these down-memory-lane sojourns. He changed the topic.

"But, dad! What do you do with my telephone invoices? Doesn't your company claim it as business expenditure." The economist stepped in. "Maybe dad's company does; but like Aesop's Fable The Hart in the Ox Stall, `Nothing ever escapes the master's eye'. The Finance Minister has begun to tax companies for their telephone expenses. It is called fringe benefit tax".

"What? Fringe benefit tax?" shrieked Harry. "Companies pay tax on a certain portion of specific items of expenditure debited to their profit and loss account. This is called FBT," Didi explained.

"Twenty per cent of the call expenditure is considered as fringe benefit to the employees and the company has to pay tax, surcharge and education cess of 33.66 per cent on it."

Harry pulled out his calculator, "So if someone spends Rs 100 on telephone, there is an FBT of 33.66 per cent on Rs 20 and the company ends up paying Rs 6.7 as FBT. Phew!" Mom said, "Service tax, service tax. "Yup add to that the Rs 10.2 as service tax and the government rakes in Rs 16.9 on every Rs 100 of telephone talk," Harry commented.

"A little more than that," said Didi. "When you have a telephone bill of Rs 100; you end up paying service tax of Rs 10.2. Of course, input credit on service tax is claimable, but otherwise your net telephone expenses will be Rs 110.20.

"Now compute FBT on this expenditure. That is, 110.20 x 20 per cent x 33.66 per cent, and you end up paying Rs 7.42 as FBT," Didi amplified. "Hey," said Harry, "that's tax on tax." Didi agreed. "Yup. This is the cascading effect of tax. You are paying Rs 17.62 as taxes for Rs 100 of telephonic value."

"Well, I never knew that so many taxes were paid on a single call," Harry said. "And in the coming days with the telecom sector expected to grow exponentially, the taxman's song will only get louder," dad jutted in.

The economist in her stirred up, and Didi said, "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest amount of hissing."

"Is telephone not a great utility? Are you against people having telephones?" asked Harry. Mom remarked, "Utility is when you have one telephone, luxury is when you have two and opulence is when you have three." Harry's dad quipped, "Paradise certainly is when your son has none." Didi supported him, "Harry, you should restrict each of your telephonic conversations to 30 seconds". Harry cried out "What can I say in 30 seconds, dad?"

"You can say," said dad pausing for effect, "Please Call Back".

Racy@thehindu.co.in

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