Taxation of IT Companies

It is high time, the IT companies are brought under the Tax net.  For far too long, the IT companies have been enjoying the benefit, while other companies in the manufacturing and other sectors are paying hefty taxes. Given the present day scenario, I feel everybody should be treated on an even keel.  One indirect beneficiary of the tax exemption is Satyam.  As per the voluntary disclosure made by Mr. Ramalinga Raju, it seems that Satyam's profit was being inflated artificially for years together along with non-existent cash balances.  Had some amount of tax levied on the IT firms, it would not have been possible for Mr. Raju to inflate the revenues artificially, as he would have had to cough up money for the payment of the taxes and coupled with the fact that there was no money in their kitty, he would have been forced to a corner in the first place.  Such a situation could have been avoided.

However, we don't know.  Looking at the sheer audacity of Mr. Ramalinga Raju, it is definite that he would have devised another plan to defraud the investors.  Taking into consideration the number of IT firms around in this country, it sends a chill up my spine to imagine how many such similar cases are there.  It is high time, the Government along with the ICAI bring about a systemic change to prevent such incidents occuring in future.

One more thing which is pestering me for quite some time is how come on the one hand Merril lynch came to know about the financial irregularities immediately on it being appointed as investment bankers to enhance shareholders value, while on the other hand PriceWaterhouseCooper could not detect the irregularities for years together.  There is something fishy about the same.

Regarding the bail-out of Satyam, quite a few voices have come out against it.  Just because it is Satyam, the corporate sector wants a bail out.  What about the numerous companies which have become sick due to genuine problems. What happened to their employees.  No body bothers.  Just because an iconic company has fallen, it does not mean that tax payer's money should be used to bail the company out.  It would definitely send a wrong signal to all the wrongdoers.   By letting the company fall and taking stringent action against the perpetuators who commit such frauds, the world at large would definitely appreciate India

Satyam Saga

I doubt if the entire truth is out in the ongoing Satyam Saga.  How is it possible for a big IT firm like Satyam to survive on a 3% operating margin as per Mr. Raju's email, when the other top IT firms are operating at more than 20% margin.  It appears that the entire facts are not out in this case.  The one thing, which comes to my mind is the operating margin of the company would be more than 20%, except for the 3%, the rest of the money would have been illegally diverted.  This is only speculation.  Only time will tell.  No company would try to run a loss making business for years to gether that too a company with no physical assets to match for.  There is a strong possibility that money would have been diverted, god knows to whom.  It is also intriguing to note that the actual employee strength of Satyam is not 53000 but way below that.  We'll have to wait till the investigations are complete to know the facts.

Satyam Fiasco

   It is shocking and utterly disgraceful to learn about the fiasco at Satyam.  During the past few months, quite a few cases of corporate frauds /companies collapsing like nine pins, especially in the financial domain, throughout the world has come to notice.  Coming back to Satyam, the email, which is said to be from Mr Raju reveals quite a few astonishing things.  It is hard to believe that an amount of more than Rs. 5000 crores was non-existent.  It is not known as to how their accounts were certified by the Auditors concerned.  

  

 Now that the fiasco has come into the open,  everybody is baying for Mr. Raju's blood.  One of the newspapers had in its editorial said that the Government should try to rescue Satyam.  Seeking Bail-out from the Government has become the order of the day for the past few months. One of the quotes which really impressed me was the one about capitalism, which was heard during the peak of the financial crisis in the US.  When Wall street was begging the US Government to bail them out, it was quoted by someone, i don't remember who, that capitalism is nothing but "Profits are privatized and losses are socialized".

Coming back to the editorial that the Indian Government should try to bail out Satyam,  I totally disagree with it.  Being a Government Employee, I often get irritated the way this paper trivialises the Government Employees especially calling them babus.  This is the very same newspaper, which ridicules the Government quite often, especially the so called babus and tells the world that they are totally inefficient, ineffective, so on and so forth.   Now to hear from the very same paper that the Government should bail out Satyam, is indeed poetic justice.  Apart from ridiculing the Government, this paper goes on to lavish praises on the corporate sector, saying that the corporate sector is capable of just handling anything; that they require no rules or regulations; that they are capable of being self-regulated; that Government should keep away from such things as it was incapable to handle such things.  Thanks to the fantastic self-regulation, trillions of dollars have simply vanished into thin air.  Had it been the Government, I think the situation would have been far better.  

The events unfolding in the last few days have clearly demonstrated one thing.  Nobody is perfect in this world and everything needs to be regulated properly.  It is just not acceptable that people keep on swindling money and the Government should come and bail them out.  The people who commit such frauds should be taken to task and put behind bars.

Coming to the question of regulation, it is deplorable to think that a reputed Auditing company (based on reports in the media) was not able to detect such a fraud being perpetuated for years together.  How come the amount of more than Rs. 5000 crores, said to be the cash balances, simply be not available in the banks.  Do they not check the bank balances etc.  Come on guys, they are fooling around with the gullible public.   Had it been done by any Government department, the media would have come down heavily on it.  Shame on such people.

Ultimately, it is the hapless small investors, who lose out in the entire episode.  Most of the small investors base their investment decisions on the numerous brokerage reports that are dished out regularly.  It is surprising to know that none of them had a wind of this mega fraud.

One more report I read was how due to greed such a fraud was committed.  It is quite detailed and it appeared to reveal the modus operandi of the fraudster.  As per the report, due to greed in land transactions, such a messy situation came to arise.  Where were these people, when everybody was gung-ho about Satyam.

Today was another shocker.  During the press conference held by Satyam, one of the reporters asked the interim CEO whether the total employees of Satyam was indeed around 53000!  He revealed that when part of the Audited report was stated to be totally false, it was difficult to believe everything that was reported.  It is so cynical.

Now atleast, please dont ridicule the babus.  Keep your house in order and then throw stones at others.