Letters: The colour of tax

This refers to the edit “Looking forward on tax” (January 24). Some years ago, the Supreme Court ruling on the ITC case required the government to refund Rs 400 crore. At that time, however, irrespective of the Supreme Court judgment, the prevailing view was that the ITC had created a structure of cigarette pricing to avoid tax and even though there was a loophole, it was the ITC that was in the wrong. And, thus, the tax refund claim was not insisted upon by the ITC.

Similarly, when Yashwant Sinha introduced the dividend distribution tax (DDT), many corporations tried to schedule their annual general meetings (AGMs) before the year-end and declare dividends (dividends can be approved only by shareholders) in order to evade the DDT that would come into force the following year. In order to fulfil minimum requirements for the notice period before the AGMs – 21 day and so on – meetings could not be held before March 30. Signing so many cheques for dividend in one day, before March 31, would have been impossible, so cheque signing began much before the AGMs (viz approval). This, too, was frowned on by the media as well as the government and, taking a cue, the dividend was not declared that year and bonus shares were given the next year to avoid DDT.

 

It is obvious that our standards of tax behaviour differ between a local investor and a foreign investor.

A free market is based on the premise that everyone looks after their interest and the overall good is presumed. It is a bit naive to suggest that in the prevailing euphoria of self-interest, someone in the government is going to take a hard look on tax matters. Also, with the Supreme Court consistently giving a sanction to it, anyone with any level of sophistication would well understand that tax avoidance is the smart thing to do.

Hari Parmeshwar, Mumbai

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