Ease of business vs tax pressure

Last Tuesday, the shares of Polycab, which had a market capitalisation of ₹80,000 crore and sales of over 16,000 crore, slumped 9 per cent on the news of income-tax (I-T) searches at its offices for alleged tax evasion.

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The stock stabilised for a day and then collapsed 21 per cent on Thursday, when the I-T Department issued an unusually detailed press release saying that it had discovered undeclared cash sales of €1,000 crore - the release did not name Polycab. It also mentioned uncounted cash payments of about 1,000 crore in fake expenses and undeclared transactions of ₹500 crore. Polycab denies any wrongdoing but its market capitalisation has fallen by 25 per cent in just a few days because it was considered a rock-solid stock and was in the portfolio of many institutional portfolios and mutual funds.

In the past six weeks, after the recent state polls, unbridled enthusiasm had gripped the stock market on expectations of a huge win for the Bharatiya Janata Party (BJP) in the upcoming general elections - an outcome that companies and investors are looking forward to. At the same time, a slew of very large, well-regarded, blue-chip companies have received notices from the I-T and Goods and Services Tax (GST) Departments for tax violation. While Polycab's case seems more serious than others, here is an extraordinary list of large companies that have been slapped with notices for different kinds of "violations" and "short payments". Government-controlled Life Insurance Corporation (LIC) got an ₹806 crore notice from the Maharashtra government on January 1 for alleged short payment of GST in 2017-18. The move appears to have inspired GST offices in other states, and Tamil Nadu, Uttarakhand, and Gujarat came up with demand notices totalling ₹667 crore on LIC; Telangana chipped in with a 116 crore demand and it had already sent a 183 crore notice in December.