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P.Chidambaram disappoints young entrepreneurs in budget 2006-2007
The finance minister Mr. P. Chidambaram ended his budget citing a quote by Henry David Thoreau, “If you have built castles in the air, your work need not be lost. That is where they should be. Now put the foundation under them.”
He claimed the government wants to support the younger generation and their entrepreneurial zeal. However, he seems to have worked against the interest of the young generation making it very difficult, if not impossible for them to turn entrepreneurs.
Finance (No. 2) Act, 2004 inserted Ss.2A in S. 71 of the Income-tax Act, 1961 (the Act) effective Assessment Year (A.Y.) 2005-06 to lay down that a loss computed under the head ‘Profits and Gains of Business or Profession' shall not be allowed to be set off against the income assessable under the head ‘Salaries'.
This means that a person working with some company who wants to start a small business of his own would face a major hurdle.
If his business made losses, he wouldn't be allowed to set off his losses against his salaried income. He would have to pay tax on the income he earned as salary, even if he loses his money earned as salary in the first year of business.
Few businesses make money from day one. The middle class is known to be cautious about venturing into a business, having usually worked all their lives. Their children too are conditioned to work for a fixed salary. We need to encourage people to turn entrepreneurs. In line with this, such a draconian section should have been repealed. Nothing has been done on this front.
Another important aspect is the service tax of 12 % that will apply to Internet advertising. The Internet is a medium growing at a rapid pace and most people working in this industry are relatively younger. Advertising is one of the only sources of revenue for this industry that is still in the nascent stages. The imposition of a 12 % service tax will discourage new entrepreneurs in this Industry.
The internet industry is being clubbed with mobile telephony, outdoor advertising, ATM advertising, Music Videos and product placement in movies. This is being very unfair to Internet entrepreneurs.
To put it in perspective: As per a survey by the Internet and Mobile Association of India data for which was revealed in September 2005, it was estimated that in 2005, India's advertising industry generated about $2.2 billion annually and online advertising comprised less than 1 per cent of this. This is in the region of $22 million or about 100 Crores. This is less than a third of what 'Kaun Banega Crorepati' the quiz show hosted by Amitabh Bachchan on Star plus alone grossed in sponsorships during its second run, last year.
The Internet has been growing at a massive pace and needs to be nurtured. The younger generations with their energy, zeal, drive and ideas will come up with online innovations which will improve the quality of life, save precious time and create wealth for society. Imposing a tax on Internet advertising will collect a paltry 12 crores but will serve as a disincentive to many entrepreneurs who're planning to enter this industry. The finance minister should reconsider his plans in the interest of the young Indians.
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