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The extension of the STPI scheme, which allowed IT units to function tax-free for 10 years from the time of inception, could help in an entirely unexpected fashion: in avoiding corruption!
N. Vittal, former Central Vigilance Commissioner, says, “The Tax and Customs departments, while having some exemplary employees at the higher levels, certainly have some of the most corrupt employees at the lower levels.”
Extending the STPI scheme, especially for small and medium-sized firms, could free these helpless players from the ‘stifling clutches of these departments'.
“Tax departments are anti-industry. They are very corrupt — it is the experience of every entrepreneur. A tax-free STPI scheme is one guarantee against corruption in tax departments.”
He says that government officers, depending on where they are posted, develop an attitude. “Most departments are ones that spend money. Tax and Customs departments, however, have the duty to gauge the incomes of entities and then decide how much of that should be taxed.” He explains that if the officer is honest, the taxed amount goes to the government. Otherwise, part of that evaluation goes into his pocket!
According to Vittal, “The giants in the IT industry do not need assistance. The STPI is like a nursery. Companies cannot always be given these benefits. But that does not mean that you throw the baby away along with the bathwater. The STPI umbrella can shield especially fledgling companies from being strangled!”
His argument is that the STPI scheme has worked well for so many years. “Don't kill it!” Who knows if the next Infosys is lurking among these small companies now, he asks.
Asked how the government would decide as to who would get tax sops, he says the best way to tackle this is to take the industry into confidence. Suggestions from industry include a certain revenue ceiling limit; say, up to Rs 100 crore, in deciding who gets tax sops. Vittal says, “The problem with fixing revenue limits is that you have to revisit them often. A sum of Rs 100 crore may become meaningless in a few years.”
That aside, wouldn't a company with Rs 1,000 crore as revenue decide to split into 10 subsidiaries, just to get the tax benefits? “So what?” retorts Vittal. “Wouldn't this still create jobs? Wouldn't that have a ripple effect on the economy? Wouldn't these employees pay their taxes? Is there only one way to increase tax collection?”
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