Sunday, October 5, 2008

STPI scheme and tax holidays: The two are not synonymous

When the finance curate announced a one-year extension of the Software Technology Rosa Parks of Republic Of India (STPI) strategy - virtually passing the ultimate determination to his replacement - what the IT industry reacted to was "finance minister's determination to widen the taxation vacations by one more than year." Not surprisingly, that was the newspaper headline of most mass media reports.

Tax freedom - that is all that the big IT serves exportation houses see in the STPI scheme. And that is exactly what the finance curate is after. He is not convinced why these big houses - some of which do borders in the thirties, and are human race leadership in their countries - demand this freedom from the government.


The combined taxation parts by these houses will be important and as the individual responsible for maximising taxation revenues, he sees no injury in asking them to pay taxes.

So, even when he announced a year's extension, he made it very clear that he makes not believe in exemptions, but rationalization of taxation rates - a statement targeted at those looking for some taxation grant or the other.

Unfortunately, in this tug-of-war between the babus who believe that the IT industry should be taxed and the kingpins of IT industry, the STPI scheme, which is the cardinal point of debate, have taken a backseat. The argument have completely shifted to taxation concessions.

That is unfortunate, to state the least. STPI was not started with that objective. When initiated, STPI strategy was aimed at accelerating India's software system exports. And two of the greatest challenges of that clip that STPIs addressed were substructure and authorities clearance. This was much before the telecom revolution made high-speed lines available almost on demand and Chandrababu Naidu changed the equation between the state authorities and IT companies. Tax vacations were the icing, not the cake.

Of course, things have got changed since. But even today, 100s of enterprisers purchase STPI for setting up start-ups inch a no-hassle way, and in any portion of India. And yes, taxation freedom is of import for them too, while struggling to acquire the first few customers.

FM's taxation rationalization will not assist them. It may assist the big companies. But one thousands of enterprisers will have got to rethink if they could take all the problems to put up a company or take the easier path of getting to a tea cosy occupation in an IBM or an Infosys.

In short, discontinuance of STPI strategy will impact entrepreneurship severely. The impact of that may not be seeable immediately as the industry gross will not be affected so much. The start-ups' part to India's IT industry gross may be too less to be noticed. But the long-term progress of a growing economic system like Republic Of India will surely be affected.

It is the riotous alterations brought by enterprisers that supply the large drift for advancement of an economy, not incremental growing brought in by the large and established.

At this stage, can Republic Of India afford that?

SEZs: The anti-thesis of STPI

Ridiculously, many treatments around continuance of STPI strategy do comparings of STPI and SEZ - something that takes into consideration the lone commonality: taxation exemption. Such is the pervasiveness of this belief - STPI intends taxation exemption. Comparing the two is like comparing how the gross sales of Mercedes Second social class and Nano will be affected if the terms of the former is slashed by 10% and that of the latter is hiked by 10%!

SEZ is for the large and famous. STPI - while the large and celebrated make purchase its taxation vacation clause - assists the enterprisers and little companies in a batch more ways.

A few in the cognize even state SEZs are a strategy to assist the existent estate anteroom more than anyone else. I will not be that harsh, because I sincerely believe they have got their ain positives (even beyond taxation exemption). My only entry is: delight make not mistake between the two, as their aims are very different.

Who will take up the cause of entrepreneurs?

Ever since the treatment started around the continuance discontinuance of the STPI scheme, a important subdivision of the IT industry captains have maintained that its continuance will assist the little and medium companies. Even the finance minister's proclamation about the one-year extension saw reactions that highlighted this-how good it will be for little companies.

The obvious inquiry to inquire is: if it is all for the little medium companies, why not modify the strategy to do it applicable for little and medium companies only? The FM, who is going by simple computations of how much taxation gross the authorities will do lose, is more than likely to oblige in this lawsuit as he will still acquire the big money from large participants as tax.

I will even travel a measure further. Rather than defining little medium by revenue, it will be more than liable to define a clip time period for each company from the day of the month of constitution - state six years, or even ten. After that, the company moves out of the STPI ambit.


This won't just protect the involvement of the entrepreneurs, it will also not be the treasury too much in footing of taxation gross loss, something the frequency modulation is so overtly worried about. I propose clip time period rather than revenue, because a revenue-based standard will honor mediocre performing artists while punishing companies who turn faster.

The job is: I am not the first 1 to believe of such as a "radical" idea. It is a very natural thing to do. And many industry leadership cognize this. Question is: who will talk for the entrepreneurs? Every industry have associations. We make not have got an Aspirant Entrepreneur Association of India. May be, the frequency modulation can initiate.

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