There is a lot of talk about starting up around us. Many smart young people want to become entrepreneurs and there is now some encouragement to be found for that kind of ambition.
Which is great. Now here is something you should know about how honest businesses are taxed in our country.
-From your revenue, they takeaway 14% as service tax.
-From your costs, on everything you buy, they charge 15% excise/sales tax etc.
- From your salary costs, they make you tax upto 33% of your salary costs as TDS.
- If you survive this onslaught and still manage to make profits, they will demand 33% of the profits as corporate income tax.
- If you still have profits and declare a dividend, another 17.65% is taxed as Dividend distribution tax.
So, let me put this long story in numbers:
A) If your income is = 100.00
B) Less. Service tax = 12.28
C) Net income (A-B) = 87.72
D) Expenditure (assumed) = 75.00
E) Tax on Exp. (20% of D) = 15.00
F) Net profit.(C - D) = 12.72
G) Tax on profit (33% of F) = 04.24
H) Profit after tax (F - G) = 08.48
I) Dividend tax (18% of H) = 01.50
So, this is what entrepreneurs work for:
Total income = 100
What the government collects = 12.28+ 15+ 4.24 +1.5 = 33.02
Expenditure Net = 60
What you take home as a stake holder = 6.98
The government makes 4.73 times of what entrepreneur makes.
If you make losses, you are of course, on your own.
This Budget, Jaitley has introduced an additional 2% surcharge on income if your taxable income is more than Rs1 crore. This applies to companies as well.
Quite simply, at every stage they take their ransom at high seas, irrespective of the outcome. They are like sharks daring you to survive. They make you work, so that you can pay them first. And then if you are in losses, they leave you on high seas and turn towards those who still manage to swim.
Entrepreneurs in India have survived despite the government, not because of it. Give them a transparent regime, Get rid of crony capitalists, ensure rule of law. Let everyone have a shot in the market of opportunities without fear or favour. Get away from the inspector raj. Ensure advance rulings in taxation to reduce uncertainty and avoid corruption. Today, it pays to be outside the tax regime than being a part of it. Service tax regime is a sinister tax that incentivises cash transactions, where the buyer and seller save 14%.
Now, Go. Create a start up.