The problem with PoEM
This is in response to the letter from Shri Hasmukh Adia, Revenue Secretary, GoI, in response to my article on PoEM. It is indeed a happy occasion that such a senior official of the GoI has responded. This indicates a refreshing change on the part of the current dispensation in terms of paying attention to the public’s views. I would like to point out the following:Income tax may have much to do with round-tripping. But the income tax status of the funds manager has nothing to do with the same. The proof of the pudding is in the eating. Despite the finance minster’s stated objective, not one fund manager has relocated to India.
The argument that PoEM adheres to international standards is specifically what my article criticises. We need to attract investments that create jobs. We are better off imitating Ireland or Singapore than trying to adhere to international standards which the rich countries might want to thrust on us. Besides, we can start worrying about international standards after the rest of our environment reaches the same state of business-friendliness prevailing elsewhere. Trying to selectively adhere to international standards that hurt us, while leaving the rest of our environment business-unfriendly gets us the worst of all worlds.
The draft principles of PoEM that have been announced are not specific and clear. Stating that “a company engaged in active business outside India and which has a majority of the Board of Directors outside India will not be construed to have a PoEM in India. Having an occasional Board in India or setting up of regional or divisional offices in India does not make a company resident in India” … is simply not sufficient given the experience Indian businesses have had with the income tax department, especially considering that we need to stay in business after rational revenue secretaries retire and are replaced with unpredictable ones. The income tax officer is definitely going to use the opportunity provided by expressions like “active” or “occasional” to raise demands especially as the deadline for his/her annual target gets near. The only way this can be avoided is to specify, with zero discretion exactly what constitutes expressions like “active” and enumerate “occasional”—is it one or two in a year and so on. Anything to the contrary opens up the prospect of demands. As someone who has been associated in running businesses in more than a dozen countries, I can testify to the fact that Indian income tax has been consistently the most hostile towards businesses. Our fear is that PoEM will give more power to demonstrate this hostility.
Jaithirth Rao, Mumbai
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