Withholding tax withholds growth.

It is astonishing how ignorant we Indians really are about how we are robbed of our money in the form of taxes in ways which are kept hidden from us. One is called TDS or, Tax Deduction at Source which forces employers to deduct income tax from employees before paying them and depositing the money with the government. Banks are required to deduct taxes on interest accrued on fixed deposits before paying out. The other is called withholding tax which forces a person buying a property to deduct tax from the price and deposit it with tax authorities or else he will not be allowed to register the property in his name. One such law required companies borrowing money in foreign countries to withhold 20% tax on the interest paid. Say a company borrowed $100 million at 5% interest from a US bank the company would need to pay $5 million in interest every year. Under the law the company was required to withhold 20% ( just reduced to 5% ) of this amount or $1 million and pay it to the government. Naturally the US bank lending the money would not want to be paid less than what was due so it would raise the interest rate to 6% so that it received the full interest even after payment of tax in India. This naturally raised borrowing cost of companies which, in turn, would be passed on to Indian consumers who would end up paying more for their purchases. In effect it was a disguised tax on Indians. In every country companies are allowed tax relief on interest on loans but not here. The government's argument is that the US bank is making profits out of business conducted in India so it is liable to pay tax. That is totally untrue. The transaction with the bank is taking place in the US and the interest earned would be taxed in that country. The bank has nothing to do with what the company is doing and, in fact, would demand to be paid even if the company was making a loss. In May 2007 Vodafone, a British company, bought Hutch, an Indian telecom company, for $11.1 billion from Hutchison Whampoa based in Hong Kong. The deal was conducted in the Cayman Islands by the Dutch subsidiary of Vodafone. Our government demanded $2.5 billion from Vodafone as withholding tax and the matter ended up in the Supreme Court. In January of this year the Supreme Court opined that Vodafone was not liable for any tax as the entire transaction was outside the jurisdiction of the Indian government. Politicians being thugs they passed a law to retroactively review every transaction going back to 1960 and tax where they feel like. Naturally all foreign investments dried up and the rupee dived further. So they freed up interest paid on Non Resident deposits to attract dollars from Indians living abroad. Banks are paying 9.25% on 2 year fixed deposits, which is tax free. So NRIs can borrow in the US at 1% and earn 9.25% without paying any tax. A stupid solution to a bad law. Taxes are a violent robbery of the people.