Tuesday, February 01, 2005

Extortion by the government: If it’s illegal, make it legal, or heck, force it to be legal.

The Union government has promulgated an ordinance asking tobacco giant ITC to pay Rs 419 crore in taxes. The taxes were in a dispute that went up to the Supreme Court. The Supreme Court decision rejected the government demand and instead asked it to pay ITC Rs 350 crores it had extracted from ITC in excessive taxes.

To kill the Supreme Court’s decision, it decided to change the law. Since a Parliament session was still away, it decided to bring in an ordinance.

The case is simple. Cigarettes are sold in packs that have the maximum retail price printed on them. But the small retailers sell cigarettes in loose. Suppose a pack of 20 cigarettes costs Rs 55. One cigarette from that pack should cost Rs 2.75, but the small galla seller would take Rs 3 for one. It works out simpler and the small retailer makes a little extra for selling it loose.

So some 15 years ago, the government asked ITC to pay excise on the basis of the maximum price a cigarette was sold for. ITC went to court saying it would pay at the rate it sells it to the retailer. It won the case.

But the government, to fill its coffers, decided to extort some money.

Extortion of a different kind
I see fresh posters and banners exhorting people to help the victims of December tsunami by donating money to the Prime Minister’s Relief Fund.

Our forex reserves are brimming, the economy is booming. I still do not understand why the government can’t give a thousand crores to the affected people from its own coffers. That’s less money than what was made in the fodder scam in one of India’s poorest state.

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