An Opinion of the author. Ravinder Singh
August23, 2013
August23, 2013
India has become the “least favourable market”, and it now
makes business sense to exit and export from China, Finnish major
Nokia has told the government. In a letter written this June, Nokia
cautioned that the “political risk” of operating in India may impact
future investment decisions.
makes business sense to exit and export from China, Finnish major
Nokia has told the government. In a letter written this June, Nokia
cautioned that the “political risk” of operating in India may impact
future investment decisions.
Nokia urged the government to “act quickly to correct the wrong
perception of India as a place for business”.
perception of India as a place for business”.
The telecom multinational’s caveat came in the wake of fresh income
tax disputes and delay in the refund of VAT. It is ominous in the
current economic scenario in which foreign direct investment has
become a trickle, institutional investors have been pulling out, and
several investors have refused to take the plunge after wetting their
toes.
tax disputes and delay in the refund of VAT. It is ominous in the
current economic scenario in which foreign direct investment has
become a trickle, institutional investors have been pulling out, and
several investors have refused to take the plunge after wetting their
toes.
In a ‘non-paper’ dated June 19, 2013, Nokia sent a harsh, terse
message to the Ministry of Commerce & Industry: “India has suddenly
become the least favourable market.”
message to the Ministry of Commerce & Industry: “India has suddenly
become the least favourable market.”
Technically, a non-paper is an unofficial document. It was received by
the finance ministry last month.
the finance ministry last month.
It said that the non-refund of value-added tax by the Tamil Nadu
government made it “more cost efficient for Nokia to have transferred
the manufacture of mobile phones to China and to import them to Indian
market rather than manufacture them in Chennai”.
government made it “more cost efficient for Nokia to have transferred
the manufacture of mobile phones to China and to import them to Indian
market rather than manufacture them in Chennai”.
Under an MoU signed with Tamil Nadu, the state was to refund the four
per cent VAT Nokia pays on phones sold in the domestic market from its
plant in the SEZ. The issue reached a flashpoint after currency
fluctuations and China-Vietnam competition started eroding thin
margins, especially in the low-end models.
per cent VAT Nokia pays on phones sold in the domestic market from its
plant in the SEZ. The issue reached a flashpoint after currency
fluctuations and China-Vietnam competition started eroding thin
margins, especially in the low-end models.
“The state has not issued a government order in accordance with the
MoU,” Nokia wrote in the non-paper.
MoU,” Nokia wrote in the non-paper.
The company has also mentioned the bilateral tax treaty between India
and Finland, under which the software business is to be taxed in
Finland, where Nokia is based.
and Finland, under which the software business is to be taxed in
Finland, where Nokia is based.
In March, the finance ministry had served a retroactive income tax
demand of Rs 2,080 crore on Nokia. The I-T department asked the
company to pay the tax evaded on its royalty payment to Finland-based
parent Nokia Oyj for downloading software on mobile devices
manufactured at its Sriperumbudur facility since 2006.
demand of Rs 2,080 crore on Nokia. The I-T department asked the
company to pay the tax evaded on its royalty payment to Finland-based
parent Nokia Oyj for downloading software on mobile devices
manufactured at its Sriperumbudur facility since 2006.
This, Nokia has said, violates the bilateral tax treaty between the
two countries. “Nokia does not think India can override its
international obligations and the mutual tax treaty, by introducing
retroactive domestic laws without greatly disturbing the trust
international business in India,” it wrote.
two countries. “Nokia does not think India can override its
international obligations and the mutual tax treaty, by introducing
retroactive domestic laws without greatly disturbing the trust
international business in India,” it wrote.
“Taxation”, it said, “should not drive business decisions on locating
operations, but current tax claims against Nokia and other
multinational companies operating in India have too great an impact on
the predictability and certainty of Indian business environment to be
ignored.
operations, but current tax claims against Nokia and other
multinational companies operating in India have too great an impact on
the predictability and certainty of Indian business environment to be
ignored.
“The political risk of operating in India has therefore become
suddenly substantially higher and may inevitably influence future
decisions to develop one’s operations in India.” Companies involved in
tax disputes in India include Cadbury Plc, Royal Dutch Shell, Vodafone
Plc and LG Electronics Inc.
suddenly substantially higher and may inevitably influence future
decisions to develop one’s operations in India.” Companies involved in
tax disputes in India include Cadbury Plc, Royal Dutch Shell, Vodafone
Plc and LG Electronics Inc.
Nokia said: “A holistic view is needed to understand the big picture
and to ensure that possible short term benefits of aggressively
changed fiscal policies do not override long term policies to develop
Indian economy, create growth and jobs by attracting investments into
India with predictable business environment as has been done in the
past…
and to ensure that possible short term benefits of aggressively
changed fiscal policies do not override long term policies to develop
Indian economy, create growth and jobs by attracting investments into
India with predictable business environment as has been done in the
past…
“It is very important that the Indian government corrects quickly
these surprising actions of individual tax authorities against Nokia
to restore the trust of Nokia and other multinational companies in
India as a good place of business.”
these surprising actions of individual tax authorities against Nokia
to restore the trust of Nokia and other multinational companies in
India as a good place of business.”
Asked for a comment on the document sent to the government, Nokia
spokesperson Poonam Kaul said over the phone on Thursday evening: “How
will I know (about the non-paper)? It may have been sent by Nokia
Finland. We have no concerns with the government. We had some
challenges, but that is a public issue. The tax matter is sub judice.
We can’t comment.”
WHY NOKIA MATTERS
spokesperson Poonam Kaul said over the phone on Thursday evening: “How
will I know (about the non-paper)? It may have been sent by Nokia
Finland. We have no concerns with the government. We had some
challenges, but that is a public issue. The tax matter is sub judice.
We can’t comment.”
WHY NOKIA MATTERS
* Chennai handset production facility, set up with an investment of $
285 million, is Nokia’s largest in the world
285 million, is Nokia’s largest in the world
* Nokia employs over 8,000 workers directly, and provides indirect
employment to more than 30,000 people
employment to more than 30,000 people
* Has been in India since 1995, Indian firms play an important role in
Nokia’s content ecosystem
Nokia’s content ecosystem
* In 7 years, Chennai facility has crossed the 800 million production
milestone, even though Samsung has just beaten Nokia as India’s
largest cell phone maker.
milestone, even though Samsung has just beaten Nokia as India’s
largest cell phone maker.
It is bad governance when State and Center demand tax payment against
tax free schemes or projects and offering Refunds after considerable
delay.
tax free schemes or projects and offering Refunds after considerable
delay.
NOKIA threatening to relocate in China is very unfortunate.
It is the duty of GOI to protect Foreign Investors in India who have
invested in Plant & Machinery and created thousands of full time jobs.
invested in Plant & Machinery and created thousands of full time jobs.
VAT should not be charged on products made in SEZ when TN State
Government had assured no tax on Domestic Sale.
Government had assured no tax on Domestic Sale.
I think TN government should resolve the issue immediately when
Narendra Modi is ready with Cash and Land and Incentives to lure NOKIA
to Gujarat.
Narendra Modi is ready with Cash and Land and Incentives to lure NOKIA
to Gujarat.
CAG defamation Campaign and Unfortunately even the Supreme Court
was swept away by the grand mischief.
was swept away by the grand mischief.
In the case of 2G we found most Shameful consequences of spectrum for
2G outdated technologies was priced almost twice than 500 times more
efficient 4G technology.
2G outdated technologies was priced almost twice than 500 times more
efficient 4G technology.
Add to the above unlike commodities where quantity and quality differ widely
there is uniformity in Spectrum allocated.
there is uniformity in Spectrum allocated.
CAG for example in 4000 MW UMPP projects in MP over DELIBERATELY
looked two things – first the PPA signed by MP government for
Chatrangi Project was at two times than bid price committed by
Reliance Anil Ambani for SASAN project (Rs.2.45/kwh to Rs.1.19/kwh)
and second Coal Deposits were 10% more than committed and of 10% to
12% better quality that attracts 20% to 25% higher price.
looked two things – first the PPA signed by MP government for
Chatrangi Project was at two times than bid price committed by
Reliance Anil Ambani for SASAN project (Rs.2.45/kwh to Rs.1.19/kwh)
and second Coal Deposits were 10% more than committed and of 10% to
12% better quality that attracts 20% to 25% higher price.
This together is well over Rs.5,00,000 crore Real SCAM in just one
4,000 MW, Chatrangi project.
4,000 MW, Chatrangi project.
Chatisgarh, MP and Gujarat had promoted over 100,000 MW projects.
REAL loot is in PPA signed by these states with private
developers without even providing for Transmission Lines.
REAL loot is in PPA signed by these states with private
developers without even providing for Transmission Lines.
When CAG itself reported ‘Virtual Losses over 20 Years’ Immature or
Incompetent Supreme Court believed Rs.1,76,000 crores have already
been robbed even before most operators had barely started the roll
out.
Incompetent Supreme Court believed Rs.1,76,000 crores have already
been robbed even before most operators had barely started the roll
out.
‘Higher bandwidth 10 Gigabit Ethernet standards have since become
available as the IEEE ratified a fiber-based standard in 2002, and a
twisted pair standard in 2006. As of 2009 10Gb Ethernet is replacing
1Gb as the backbone network and has begun to migrate down to high-end
server systems.’
available as the IEEE ratified a fiber-based standard in 2002, and a
twisted pair standard in 2006. As of 2009 10Gb Ethernet is replacing
1Gb as the backbone network and has begun to migrate down to high-end
server systems.’
I fact I was using 100 mbps ethernet as early as 2003 though service
providered delivered just 64kbps. But when ISP provided direct service
in case of their server problem I was getting over 50 mbps data flows
much faster that 3G or 4G services likely to be operated. This
ethernet was retailed for only Rs.300/ in 2003.
providered delivered just 64kbps. But when ISP provided direct service
in case of their server problem I was getting over 50 mbps data flows
much faster that 3G or 4G services likely to be operated. This
ethernet was retailed for only Rs.300/ in 2003.
In 2002 Telecoms laid countrywide Optic Fibrer network that could have
provided Broad Band, IPTV, Telecom, VoIP and IT services at
practically no cost compared to $400b annual imports bill for imported hardware by
2015. Wire Ethernet based technology is faster than even 3G and 4G and
could have developed and deployed by Indians.
provided Broad Band, IPTV, Telecom, VoIP and IT services at
practically no cost compared to $400b annual imports bill for imported hardware by
2015. Wire Ethernet based technology is faster than even 3G and 4G and
could have developed and deployed by Indians.
Pramod Mahajan BJP Telecom Minister alone is $Trillion Liability to India.
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