Sunday, September 03, 2017

Why are our laws so porous?

The Prime Minister repeatedly promised a "Minimum Government but Maximum Governance, and his first cabinet gave us hopes that he would keep his promise. His first cabinet in 2014 consisted of 45 members but in 2015 the number increased to 65, In 2016 the number went up to 73, including the prime minister, and after the latest reshuffle last week the number has crept up to 76. It is not just a matter of salaries for ministers, there are free palatial bungalows, Z+ security, official cars, free first class travel, visits to foreign countries and many other perks that people are not told about. So, a post as a minister acts as both a carrot and a stick. Do whatever I say, however immoral that maybe, like demonetization and Aadhaar, or you will lose your status and go back to being just an ordinary member of parliament with a salary or Rs 50,000 per month + Rs 2,000 every day for attending parliament + Rs 45,000 per month for constituency work + Rs 45,000 per month for office expenses + free housing + free travel + free telephone, gas and electricity + free medical care and too many others to list. Thus, to be reduced to an ordinary MP would cause enormous hardship for a minister. Where will all this money come from? From taxes, of course. Hence the demand for $5 billion in back taxes on Hutchison Holdings of Hong Kong. The story started in 2007 when Vodafone bought Hutchison's cell phone service in India for $11.1 billion. The deal was based in Cayman Islands so no tax was paid in India. The government demanded $2.5 billion in back taxes but lost the case in the Supreme Court. Then the government demanded a tax of Rs 37 billion on transfer pricing but this was set aside by the Bombay High Court. So now Hutchison is being asked to pay the tax with penalties. Foreign multinationals avoiding taxes by taking advantage of dubious tax havens is bad for the ordinary taxpayer in India and puts local companies, who have to pay taxes, at a disadvantage. But to keep on demanding back taxes after repeatedly losing in various courts is just a huge waste of money and time. It also gives India a bad name. The Finance Minister again repeated that the government has a right to tax multi-layered deals. If the law is clear and companies are warned beforehand there should be no problem. Perhaps, it would be better to have a minister to see what deals are being made and give an advance warning to companies, rather than a minister of drinking water. How badly our laws are written is shown by the recent case under the new Bankruptcy Law where creditors of Synergies-Dooray Automotive will get a paltry Rs 540 out of a total debt of Rs 9 billion. And the Finance Minister was a hotshot lawyer.

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