Wednesday, September 12, 2007
exit tax on iit/iim grads
a topic that's currently rather hot in the news - should iit/iim students be taxed if they choose to go abroad after having their studies subsidized by the indian government?
some links:
and many more.... just search the web i guess.
my thoughts on this:
everyone gets a subsidy when they study in india
after all, they don't pay direct income tax, since they don't have incomes, and the consumption taxes (service, sales etc.) are actually to the cost of the parents where the money is earned.
hence, why single out iit/iim grads only? i'm sure there is some form of subsidy to REC's and other management institutes. what about the UGC? doesn't this also go to students who could potentially go abroad?
hence an exit tax that singles out iit/iim is unfair. it should be applicable on all students who depart from india after they study here, and the tax should be to the extent of the amount of subsidy received.
taking this a little further, all scholarships that are given to students (especially to the weaker section) should then be claimed back, going by the same argument. this of course should be applicable on students irrespective of whether they go abroad or not. its a subsidy to them, which should be recovered when they are able to repay it out of salaries earned. hence the concept of a scholarship should be done away with, and instead should be replaced with a concept of a loan with a grace period.
people in india pay income tax, people abroad pay nothing (to the indian government)
most of the students who do not go abroad join the private sector. these are purely capitalist companies, that have no intention to do good to India (corporate social responsibility is just a sham, and covers a very small percentage of the profits of most companies anyway). how do these students, who earn for themselves, do anything additional for the country?
if the argument is that by staying in india they spend here, and create GDP (money multiplier effect), i'm sure we can compute:
1. foreign remittances that are sent back to india
2. FDI and other expenditure that is brought into india (this would also have to count, since this is in some way related to the students going abroad and making a name for themselves).
4. contracts that are handed to indian companies
based on this, i think we can see that a fair amount of support to the country is being brought about by the students who've gone abroad in the past, and this is likely to be the case from students who'll go abroad in the future.
hence i don't believe there is significant difference between a person who embarks on a mercenary career with a private sector company in india vs. one who goes abroad for the same mercenary career. is there really any difference between a consultant based in the US (who helps Bill Gates line his pockets) and one based in India (who helps Azim Premji line his pockets) or an investment banker in the US (who advises Pepsi on an acquisition) vs. an investment banker in India (who advises Parle on an acquisition) (note: names taken only due to their being famous people/brands).
however, the guy who stays in india pays income tax to the indian government, which the guy abroad doesn't. while the guy sitting abroad does pay tax to the foreign government, why can't he additionally pay something (need not be the full 30%, but could be restricted to 5-10% or so) to the indian government. then, there can be an agreement with the large countries (say the US, UK etc.) that they can claim credit against this tax payment with those countries taxation departments. even if the claim back doesn't work out, in general, most people go abroad for "better" opportunities - read as more money. if so, why can't they be taxed on their income so long as they hold indian passports? holding an indian passport gives them rights back here, so the indian government should be allowed to tax them for these rights.
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