My Angle on the Angel Tax Notification

Through a flurry of tweets, DIPP announced the changes that were made to alleviate the Angel Tax problem that the early stage ecosystem has been continuously grappling with. In a recent post I had put forth my own views on how the government could resolve these issues by accrediting angel investors, and to my surprise DIPP did accredit angel investors (in a way)  in the notification made on the 16th of January.

There were several reactions to the notifications which ranged from the positive…

….to the cautiously optimistic

I believe that the government’s baby steps toward rectifying the angel tax issue is a good sign. I also believe that there will be more incremental changes on the anvil and the biggest positive take away from these notifications is that the government is listening and (more importantly) acting.

However, I do feel that DIPP could have invited better representation that just the heads of angel groups. Most of them stand on behalf of investors but rarely make angel investments on their own. Instead the angels that are writing cheques, dealing with founders and tax authorities regularly are the ones who should be getting invited to provide their inputs. A minimum criterion of 25 investments in the last 3 years could be a good starting point. These angels’ inputs would be valuable as they would make the next set of changes more acceptable.

A couple of the changes that I would like to propose to DIPP

Let’s see what the next set of changes are going to be!


Do our systems create rebels out of entrepreneurs?

Solve this… Person V does consulting for Person G. The deal is closed, Person G promises to pay Person V. Invoices are issued and Person G changes colour to stall paying out Person V.
Person V has invested months of personal time,  employee time, rent and other overheads to close this deal and it is one of the largest deals in its sector in India. 
Person V has waited to close this deal expand his team (unaware that Person G has other plans). Person V builds a framework to build on the success of this deal. A data mining platform is built which creates new opportunities at minimal costs. The newly hired team starts work and is successful to pay for itself and start repaying the money taken from investors. 
In between a large deal with Person K is done in which Person K pays 25% and then starts to make excuses to avoid payments. Infact the taxes collected by Person K are not paid for months which puts Person V in a position where he might have to cough up taxes that he hadn’t collected! The stalling of payments creates a cash outflow situation for Person V.
Now, the predicament our legal, tax, investment and family places on Person V.

  1. Tax department says pay service tax and income tax on revenues that were invoiced but not received. This will lead further cash outgo. 
  2. Investor says only book what is received, this leads to a book loss as the money that isn’t received so shouldn’t be booked.
  3. Legal says you should litigate for dues which is long tailed. Additionally to prove your case follow point 1.
  4. Family & Investors say your running a loss (on the books) so cut down or shut down. 
  5. How each faction interests is pitted against each other is quite visible.

Person V wants to get paid and is making all out efforts to own up to his responsibility, sending emails, messages, legal notices and even taking on political forces head on to get his dues. 
Meanwhile Person V is confident that the new business that has been built can repay the investors even if the money from Person K and G continues to be outstanding.
In this entire scenario the blame is on Person K and G for not paying on Person V but the entire system works in a manner that it blames Person V for actions of Persons K & G instead of getting Person V his dues. Family, Investors and Government don’t want to take responsibilities for getting Person V paid (so they all get paid) and will instead take the role of blaming the Person V for the actions Persons K & G.
Meanwhile Persons K & G are roaming around posting pictures on social media about how awesome their lives are.
What should Person V do? 

Protect our Protectors

Before I open up with my views on this highly controversial topic, I must tell you that I grappled with the thought of writing this article for the last 24 hours. My intention here is not to indulge in any jingoism or chest thumping. I am torn apart with this topic and it my intention here to just vent out my thoughts and ask the readers to really think about how we can play our part in shaking up the annals of the government wherein the last gasp of a soldier’s breath is not terrifying enough.   index   The picture above is of BSF Constable Sanjay Dhar from the 192 Battalion who was martyred on July 16th in the Arnia subsector along the India-Pakistan border in Jammu & Kashmir. Reports state that this is the second ceasefire violation since in this week and the third in July by Pakistan. It should also be noted that Late Constable Dhar, four BSF jawans and four civilians were also injured in the firing across the borderand . According to the BSF website this is is the 2ndBSF casualty at the border this year. (Surprisingly the BSF website is yet to update the martyr list or offer condolences on its website to their fallen comrade while UP BJP has –that is just a minor observation) Do you know how the brave men and women of our armed forces are taken to their final resting place? What is the protocol for bidding a final goodbye to those that lay down their lives protecting our nation’s border? I visited the BSF website and the Indian Army to find out the procedure for paying the last respects to Constable Dhar but I was unable to find anything specific. After a lot of effort I finally chanced upon this link which lays out the procedure for a military funeral in this land we call India. (This link was found by Google eventhough the webpage is hosted on the Indian Army website.) During the search I came across a lot of articles, posts, videos that were heart breaking if not gut wrenching. Statistics like 3,987 soldiers had been killed in action from the end of the Kargil conflict in 1999 upto 2012, over 100 soldiers commit suicide each year. In comparison, USA which is actually fighting a war in the hostile territories of Iraq and Afghanistan had lost 6,802 soldiers. The intention here isn’t to talk about how much better the kill ratio is for the US troops but it is definitely to talk about the value the American public has placed on the people that die fighting for their country outside their view and on foreign lands and how little we place on our own soldiers that are actually dying protecting our own borders and our right to lead a life of freedom. Why isn’t the media getting angry about the slaying of Indian soldiers including brutal mutilations (beheadings, castrations, etc)? Why hasn’t the PM or the Defense Minister made a statement to the nation about the destruction of yet another Indian family (does the media even care about the devastated family that Constable Dhar’s untimely death has left behind?) I find it truly disgusting that we have taken the price of an Indian soldier’s life as being worth nothing at all, there is no statement from the MLA or MP of Constable Dhar’s constituency about taking up the case of Constable Dhar to Defence Minister Arun Jaitley’s office. So is Constable Dhar going to be cremated and forgotten in the ever burgeoning scrapbook of soldiers that are Killed-In-Action? It is my fervent request that each person that reads this post.

  1. Send a letter to their local MP to take up the case of this slaying in their sphere of influences
  2. Ask the Pakistani government to apologise for this death and if they cannot

If the Pakistani army cannot stop firing across the LoC, we have no reason to keep talking to them. THIS IDIOPLAMACY OF MEETING THE ENEMY THAT IS ACTIVELY MARTYRING OUR INDIAN BROTHERS AND SISTERS IS ABSOLUTE RUBBISH. It is a well known fact that Indian soldiers protected 93,000 Pakistani soldiers at the end of the 1971 war from being butchered in Bangladesh by the seething public that was seeking revenge for the atrocities that were meted out to them by the Pakistani soldiers. But now that same country is actively supporting militancy in our country, killing our soldiers and we are more concerned about playing cricket with them? We are meeting with them over flag meetings and “asking” them to stop killing our soldiers? I still salute and stand behind the PM Vajpayee’s decision to send the troops to the Indo-Pak border and sending then (and current) Pakistani PM Nawaz Sharif to face the real fear of war with the 3rd largest army in the world and twice the size of Pakistan’s army.The Pakistani PM at that time realized that messing with the Indian elephant will lead to total destruction. However the last 10 years of “idioplamacy” (idiot diplomacy) is a demotivation for our troops and such daily deaths still cannot be taken lightly and forgotten. But this voice cannot reach the Parliament until each one of us does our bit in contacting our MP and asking them to raise their voice against the horrifying statistic of one Indian soldier’s family wailing for the loss of their brave soul – DAILY.   I am going to write to my MP on Monday… I want to suggest that you do the same by finding out the address and writing a letter requesting them to bring this up for discussion in the floor of the house and getting a reply in a timely manner. The contact details for our MP can be found here at These men are putting their lives in danger each day, it is time we take out a few minutes of our time for them. “The value of life can be measured by how many times your soul has been deeply stirred” – Soichiro Honda

Cross Subsidy Surcharge: A Dacoit in Robinhood’s Clothing

Robin Hood
The verb “cross subsidize” as defined by the Oxford dictionary is “Subsidize (a business or activity) out of the profits of another business or activity.” But what happens if that industry is facing the awesome prospect of losing $27 billion per year from 2017 onwards as reported by the World Bank? To put the number of $27 billion into perspective, it is equal to the entire nominal GDPs of Nepal and Zimbabwe… combined!
In my honest opinion the in-sync folks at Wikipedia have defined “cross subsidization” aptly, as “the practice of charging higher prices to one group of consumers in order to subsidize lower prices for another group.” When I read that definition is immediately reminded me of a heroic outlaw in English folklore, Robin Hood, who is famously known for “robbing from the rich and giving to the poor”. In this post and the many more that I intend to write, it is my intention to bring to your attention the malaise that has spread in the Indian Power setup from the introduction and the subsequent revisions in what many of us see as a harmless line item in our electricity bills.
The current scenario in the Indian power sector is very grim when one concentrates on the sheer magnanimity of the numbers.

  •  India possesses the 5th largest power system in the world
  • 21% of the power generated by the India power generation companies is lost during transmission
  • Bangladesh loses a mere 10% in comparison
  • A World Bank report on June 24, 2014 stated that more than 300 million Indians (the entire population of the United States) still live without electricity today
  • 200 million of them live in villages that are supposedly “electrified”
  • The same report also stated that the sector was bailed out in 2011 with 1,90,000 crores
  • That number exceeds the GDP of Bahrain by 10%!
  • The sector was bailed out in 2001 with 35,000 crores of the tax-payers money

These poor metrics and massive bailout could have all been forgotten if the sector was aiding in “amp”ing up India’s GDP but when a FICCI report in 2013 points out that India loses $68 billion or Rs. 4,14,800 crores of its GDP due to power outages – it is time to sit up and take notice.
In my opinion the CSS (short form for Cross Subsidy Surcharge) is a dreaded dacoit that keeps raids the rich to buy narcotics and give it for free to the poor which give them the temporary high but the dacoit maintains its stranglehold. It should be noted that CSS was introduced by the previous BJP government when it passed the Electricity Act of 2003 and opened the power sector for competition. The intention at that time was to give the government run power companies some compensation for losing its customer base to cheaper and more efficiently run private power producers while they restructured themselves for this competition.
However this well intentioned move, atleast in hindsight, acted like treating a heroin addict by feeding him some more heroin and asking him to cure himself by reducing the amount of heroin he takes… such an approach rarely works! The government run entities latched on CSS like a lifeline and 6 years after CSS was to be abolished it is being used as a ploy to keep out competition and to harass consumers of power that can get cheaper power but that will not be in the best interest of the utility. The utility will tell you that they need CSS to provide free or low cost power for the agriculture sector and residential consumer but subsidization for one industry while upsetting the apple cart for all other industries is preposterous if not just plain illogical.
In certain states CSS is more than the cost of making power! For example TANGEDCO now charges a CSS of Rs. 3.40 to Rs. 3.61 per kwh while Maharashtra charges a CSS of Rs. 2.30 to Rs. 2.75 per kwh and both have increased their CSS in the last year. To see how ridiculous and anti-competitive these tactics are, just open the last annual report of Tata Sponge as available on its website. Their cost of power when they generated it for themselves was Rs. 1.47 but when they buy it from the open market or the utility the cost is upwards of Rs 8 – a large chunk of it attributable to the enormous CSS charges that are forced onto the customers.
This anomaly has led to a deathly downward spiral, one where the large users of power find it more feasible to own and operate captive power plants versus buying power from the open market or the utility. This leads to loss in valuable and profitable revenue for the entire industry – the power generator, the power transmission utility and the power distribution utility. The 3 are then stuck with power consumers that get power ridiculously cheap and below cost rates ranging from 0 (yes nada) to Rs. 2 per kwh and in the effort to balance their budgets they have to keep increasing the CSS charges and therefore driving out competition and customers too. This also has an adverse affect on inflation as electricity is a key cost for most industries.
In conclusion new government would serve the nation by ending this madness and abolishing the practice of CSS once and for all. If states want to subsidize power for residential and agriculture they should use their state subsidies budget to do the same and not lay the burden on other industries by charging them what is in effect an agricultural tax. Abolishment of CSS will give power and other industries the much needed shot in the arm (pun totally intended) to spur growth in the industry through an increase in power generation plants which will increase long-term employment and generate an affordable and growth filled future for our country.