Slowdown, plus tax terror, hits entrepreneurs hard

The death of Cafe Coffee Day founder V.G. Siddhartha has sent shock waves throughout the business communit. It is still grappling with the query as to how a man who successfully built a business empire as large as this enterprise could be driven to take his own life. Siddhartha’s letter, which he wrote before he went missing, does offer a glimpse into the circumstances that forced him to take the extreme step. Siddhartha, in his letter, alleged how harassment from the income tax department had led to a serious liquidity crunch for the company.

“There was a lot of harassment from the previous DG, income tax, who attached our shares on two separate occasions to block our Mindtree deal and then took possession of our Cafe Coffee Day shares, though the revised returns had been filed by us. This is very unfair and has led to serious liquidity crunch,” the letter read.

Siddhartha went on to add, “My intention was never to cheat or mislead anybody, I have failed as an entrepreneur. This is my sincere submission, I hope someday you will understand, forgive and pardon me.” For a man who created 50,000 jobs and built an empire that is way bigger than any other coffee chain in the country, his admission of failing as an entrepreneur has shaken up the business community, particularly budding entrepreneurs who are now extra-cautious before taking the plunge into the business world.

Siddhartha’s shocking death has opened the floodgates of criticism for income tax officials. They are now being accused of not making business conducive for entrepreneurs. It is well-known how entrepreneurs are hounded by tax authorities. Income tax disputes worth '5.71 lakh crores are pending with the Central Board of Direct Taxes. Imagine what a speedy resolution to these disputes could do for the Indian economy which is going through a slump.

In an interview with a leading business newspaper,, V. Balakrishnan, former Infosys board member, clearly spells out all that is wrong with the economy. He says, “The reality is India is seeing a big economic slowdown that is clearly seen in the earnings of all the companies today. The liquidity situation is very bad. Banks are filled with non-performing assets. They are unable to lend. The non-banking financial company segment is in a mess because of what happened in IL&FS. There is no liquidity in the system. Add to that, the tax authorities have become much more confrontational. We are seeing tax terrorism increasing across the board. Talk to any entrepreneur, any high net worth individual and they will have some kind of friction with the tax deaprtment. It is all adding up. It is a very sad thing that it is ending this way.”

Being a businessman, I am aware how difficult it has become for businesses to acquire loans. The small and medium enterprises (SME), which were fuelling India’s growth story for the last few decades, are all under severe stress due to the liquidity crunch. It is no secret that in the last few years, the confrontation between tax authorities and businesses have spiralled on an unprecedented scale. One of the major reasons for the economic slowdown is the SME sector crisis which happens to be the largest employment generator, so the present situation has direct bearing on the job crisis as well.

Not just me, industry experts are constantly reminding the government how the war on tax evasion has been detrimental for entrepreneurs in the country. It is for this reason that Kiran Mazumdar Shaw told a TV channel how India has moved from licence raj to inspector raj. She went on to add, “There is an effort to clean India Inc, but the pendulum cannot swing from one extreme to the other. The government needs to exchange with honest businessmen.”  

This confrontation has created a fear psychosis amongst the business community that has brought the corporate world to its knees. Prime Minister Narendra Modi, who won with a decisive mandate, has promised to bring more transparency and create new jobs but it seems the bureaucracy is hell-bent on derailing his vision. The Prime Minister should carefully look into what is ailing the business community in India and if he honestly looks for an answer, he is bound to find one. The Prime Minister should create an ecosystem wherein problems are solved between entrepreneurs and tax officials. He has the will but to achieve the desired goals, he should rein in tax officials and send a stern message that any one indulging in excess would be reprimanded.  

During my travels to Europe and Singapore, I met a host of business leaders who complained about the tax harassment in India and cited it as one of the primary reasons for them not investing in our country. In my opinion, the Prime Minister should hold regular meetings with corporates and assure them about the ease of doing business in India. I am often told by business heads of foreign companies how despite having a dynamic leader, who is pro-growth, the tax officials are acting in complete disregard for his vision of creating an India which provides limitless growth opportunities.

In fact, tax disputes have doubled in the last five years and bank credit is squeezed by bureaucrats and tax officials. In such circumstances, how can an entrepreneur, who is providing employment, paying taxes and creating wealth be treated like a criminal? There have been instances when tax officials on raid did not allow businessmen to take medicine. In my opinion it is generally the honest businessmen who are targeted by these officials and this is killing the spirit of the Indian entrepreneurs.  

“I know a lot of people who are scared of tax officials. Taxmen came and roughed them up, misbehaved with their elderly parents. The number of disputes has gone up in recent years. The tax redressal system is broken and there is little remedy available to the businessman,” Mohandas Pai said after Siddhartha’s death.

In Hyderabad, where I have witnessed tainted businessmen spending crores on weddings, the culprits are never targeted. We need more transparency in dealing with these issues — the corrupt should be reprimanded but the mindset that every businessman is  corrupt would destroy the spirit of entrepreneurship in India.

Let us remember how India achieved its greatest potential by letting startups like Infosys and Wipro, among others, thrive by creating an environment that benefited all. A similar sort of tax terrorism back then would have killed these startups that now provide employment to thousands in India and abroad. The tax terrorism of today is killing the spirit of entrepreneurship in India which could be detrimental to India’s plans of creating the likes of N.R. Narayana Murthy and Azim Premji. A large share of the credit for India’s success story goes to entrepreneurs who helped India become a $3 trillion economy. If tax officials continue to harass them, it would be disastrous for not just the economy but also the spirit of entrepreneurship in India.

A tweet by Rajiv Mantri sums up the mood of the economy: “Highest interest rates in the world, usurious income tax rates, triple tax on dividend, tax on buy back, tax on securities transactions, progressive taxation with GST. And then we are surprised, what killed sentiment, what destroyed animal spirits.”

The writer is a political analyst and former chairman, Andhra Pradesh Electronics Development Corporation