Taxing IT to Avoid Financial Trouble

Satyam fiasco has brought out a big question on how to check the business models and financial reporting of the Information Technology companies. Most of the technology companies in India have been enjoying tax exemptions over a decade and have also got exemption for a few years more.

As these companies are not taxed, their financial reporting can easily be fudged by anyone. Any IT company, which does not pay any tax on its revenues, can overstate it to mind boggling proportion without even being worried about the consequences. A simple and symbolic tax could be answer to all such malicious activity as ones these companies would be forced to pay tax on revenue and disclose their financial statement it would become tough for companies to continuously over state their revenues for more than a year.

There is also need to check on the business models of the companies, most of them are under tax exemptions and are now pulling themselves under SEZ status, it has become difficult to keep a tab on their functioning. Government needs to bring in regulation for disclosure of forex revenue generated from such units and the banks where they are parked. This measure will effectively keep a check on the financial activities of such IT firms and will also discourage many fly-by-night operators from posing as Information Technology firms to manipulate their IT SEZ status for retail purposes.

Government says Robust Economy Leading to Buoyant Growth in Tax Collection

Even as the country’ inflation peaked at a 13-year high of 12.4% for week ended August 2, the government pointed at a robust tax collection to indicate that the economy remains healthy. Reports had earlier appeared showing regarding early signs of an economic slowdown based on advance tax payments by corporates during the Financial Year 2008-09.

Among the figures released by the government, the total direct tax collection during April-July 2008 is Rs 71,648 cr as against an amount of Rs 48,756 cr during the same period last year translating into a robust growth rate of 47%. The tax deducted on source (TDS) during April-July 2008 on payments received by companies increased by 60% to Rs 22,128 cr from Rs 13,782 cr during the same period last year. This increase in TDS collections, is reflected in relatively lower growth rate of 24% in advance tax payments as compared to 28% during April-July 2007-08.

Though the direct tax collection has been up but the figures presented by the government are for Apr-Jul period and the government itself forecasted slowdown in the economy for the coming quarters, thus government itself has negated the argument fir strong growth.


The total direct tax collection of India, Asia's third largest economy after China and Japan, comprises mainly advance tax payments, tax deducted at source, self-assessment tax payments, and post-assessment tax collections. At the level of the taxpayer, advance tax payments and tax deducted at source are substitutes and inversely related to each other, that is, if the tax deducted at source (TDS) is high, a relatively smaller amount is payable as advance tax.