Byapaar.com -The Indian Business Blog

Due to my imminent professional exam starting from 18th April, 2008 - I’ll not be able to blog for next 3 weeks. Once its over, I’ll resume the job that I like to do - i.e. blogging.

Indian Tax authorities has recently ordered Microsoft Inc. to pay over Rs. 7 billion in tax liabilities it is due on royalty income of its products in the country. It is to be noted that Microsoft does not sell any of its software or hardware products in India. But it has been offering licensed use of its products to Indian customers. Gracemac Corporation, Nevada, a 100 percent subsidiary of Microsoft has been involved in licensing out to end users in India since 1999. According to user agreement, the software has to be activated for end-users to use and it is not sold but licensed.

But in a recent order, Indian tax authorities have said that Microsoft is liable to pay taxes on royalties it collects for licensing out. Just to note figure, Microsoft has received Rs. 22.4 billion as royalty fee between 1999 and 2005 and according to taxation law, it is liable to pay Rs. 3.5 billion in tax. But as it has not paid the tax in due time, the amount has swelled to over Rs. 7 billion including interests during the period.

Initially, Microsoft has declared to Indian Income-Tax department that, since it does not sell anything in India, its income is nil. But tax authorities say that since a price is charged for the licensed use of Microsoft products, the usage fee and royalty on it is taxable.

According to company statesman,

“Microsoft believes it is in compliance with Indian tax laws and the income tax treaty agreement between India and the US. The case in point is an old issue relating to the financial period 1999 to 2004 and for an overseas Microsoft entity.”

clearly referring to the agreement the two super powers have to avoid double taxation. However, analysts believe that royalty payments which are going out of India could be taxed.

Inflation has been rising and rising high touching a 13-months record at 6.68 during last week. Indian government has naturally become nervous as general election is not far away and it does not want to be seen a failure to control price rises just before election. So it has called a high level cabinet committee meeting as to how it can tackle the disturbing inflationary  trend.

But it is almost clear on how it plans to from what P. Chidamabaram, the Finance Minister suggested! According to him inflation has to be curbed even if it is at the cost of growth. The Indian industry has sharply reacted to the suggestion made by Mr. Chidambaram. According to Mr. Sanjay Budhia, the Chairman of CII ( Confedaeration Of Indian Industry) - the government should adopt a policy that would support a balance between industrial growth and inflationary reduction. Any hasty measure by the government to bring down inflation would result in loosing the momentum of growth that India has seen over the last decade or so.

For long large developing economies like India and Brazil have been demanding a bigger say in the affairs and running of IMF. Finally, it seems their voice have been heard as the IMF board, in a recent  in a recent proposal has made few changes in the voting structure of the 185-nation lending organization to make it more relevant.

The move is going to enhance the voting shares of emerging economies of India, China, Mexico, Brazil and South Korea. But it will also reduce the same voting shares of countries like Russia, Saudi Arabia, Venezuela, Chile, Argentina and Egypt. This is the first such change in the voting structure of the agency since its inception in 1944. The proposal pledges to increase each member’s vote by 3 times. Hence, India’s voting percentage will be 2.34 - up by a mere 0.42 share.