New Service Tax Will Harm Both India and Foreign Corporations
The new 2007-2008 budget proposal adds a service tax that will be charged on the rent received from the leasing of commercial properties at 12.36%. While at first glance this may seem like a good idea from an Indian citizen point of view, but in fact it will harm rather then help India in the long run. The new commercial lease tax will broadening the scope of the service tax, and will impose extra taxes on real estate. Commercial property is defined as all retail, office, manufacturing buildings, warehouses and any other building used for commercial purposes. Some investors that own these buildings will see a drop in their returns because they may be responsible for the increase in taxes unless their contract with the tenant stated otherwise.
This will hurt India because as the world globalizes their will be increased competition from surrounding Asian countries and those in Eastern Europe. Most of these countries are reducing taxes for foreign corporations not increasing them. By making it more expensive to lease property in India (by adding a 12% tax) Multi-National Corporations (MNC’s) will naturally look to cheaper alternatives. It’s not as if the leasing rates in India are low - it’s actually the opposite. The only reason MNC’s are still coming to India is due to cheaper labor and that a lot of the country can speak English. The more the Indian government makes the leasing of buildings more expensive, the less desirable it is for MNC’s to move or expand in India. There is no India monopoly on outsourcing.
There is no Chuck E Cheese in India
I have quite a few Indian friends that are returning from the US and Europe and find it difficult to keep their kids entertained. Why are there no decent playgrounds in India? Why amongst all of the new construction from developers is there not a City requirement to provide decent parks for the community? In return for say a higher FSI (more allowable building sq ft) the City should demand the developer provide decent public bathrooms or playground parks and maintain them. Maintenance has always been an issue in India, and should not be forgotten here.
So what is Chuck E Cheese? Chuck E Cheese is a family centered entertainment experience that includes arcade games, rides, and fun for kids. It’s an all enclosed safe environment where parents can talk and rest while their kids have hours of fun. Currently in India, I am not aware of a single establishment that matches the ubiquitous Chucky Cheese in the US. In fact, Indians spend a lot of time with their kids outside of their homes at malls or at friend’s houses. A smart investor would Indianize the Chuck Cheese experience and start franchising the concept. I suspect the investor would be so overwhelmed with business that he or she would have plans to retire in a few short years from all of the demand. I’m serious. If a competent investor today decided to raise the money and build this concept you will be wealthy.
Indian Executives Most Optimistic in the World
A recent McKinsey study showed that Indian executives were the most optimistic in the world in terms of expectations for growth in economy, their industries and improvement in inflation levels. Indian executives were the most optimistic about decline in inflation over the next six months. Most Chinese executives expected the rate of inflation to rise from its current level. Thirty-nine per cent of the Indian executives expected inflation to decline, while 36 per cent saw it rising in the next six months.
In comparison, 75 per cent of the Chinese executives saw inflation rising against only 7 per cent expecting a fall. In North America, 59 per cent of the respondents anticipated a rise and 10 per cent saw a decline in the future. In Asia-Pacific, 67 per cent anticipate higher inflation and 50 per cent of the European executives see a rise.
“These findings are particularly surprising — in India because the rupee has been appreciating steadily against the dollar and in Latin America because of the region’s historically high rates of inflation,” the study said.
- The Editor
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