Mumbai's vanishing cyber cafes

Hitesh Kadir and Mumbai's 274 other cyber cafe owners can heave a sigh of relief "" the tax man won't come calling anymore.

That's the good news. The bad news is that 25 of these 275 cyber cafes are on the verge of shutting.

And thereby hangs a tale. Some eight months ago, the income tax department found 430 cyber cafes in Mumbai. The tax department was conducting a survey to find out whether it could tap cyber cafes for additional revenue.

Says P K Rath, income tax officer at the Central Information Bureau (CIB), which collects and collates information on new identified assessees and forwards it the department's headquarters: "Our role primarily is that of information gathering on the basis of the revised codes forwarded to us by the Central Board for Direct Taxes (CBDT). Basically, each income tax commissioner is required to identify new assessees in his jurisdiction area."

Over a month ago, the income tax department took a fresh look at Mumbai's cyber cafes. To its amazement, it found that only 275 remained. Of these, 25 cyber cafes faced the prospect of closure.

Says Kadir: "Till a couple of years ago, business at my cyber cafe at Andheri (a Mumbai suburb) was not only brisk but booming. We used to make well in excess of Rs 10,000 after tax and overhead payments every month."

All this changed, says Shafiq (name changed), another cyber cafe owner, once cable network providers started offering internet connections. The death knell had been sounded for cyber cafes.

Kadir says that he makes about Rs 3,000 a month, post tax and after overheads.

He has nine computer terminals under a leaky roof that needs fixing. His revenue from scanning pictures is now minimal. Picture quality is not of prime importance people use copier machines and photo studios, he says ruefully.

Electriccity, rent (Rs 2,500 a month), employee salaries and other overheads cost him around Rs 6,000 a month. Topping it all, the Maharashtra government slapped an 8 per cent service tax on cyber cafes in July.

Some cyber cafes still make about Rs 15,000 a month, but only by staying open for 14 hours every day, 365 days a year.

Says Kashyap Sompura, who owns Kash Systems, a cyber cafe at Mumbai's Shivaji Park area: "In the last one year, intense competition among cyber cafes has resulted in unreasonably low tariffs of up to Rs 12 an hour. The service tax has been the last straw on the camel's back."

"We had to resort to dubious means in order to survive. For instance, I used to resort to downloading new movie releases from the internet and did fairly well even though that my clientele mostly comprised people known to me and my advertising was restricted to word of mouth," Shafiq says.

But soon, the Mumbai police and the film industry's anti-piracy groups put an end to this by raiding cyber cafes.

"Three to four such raids later it became unviable to continue video piracy to boost our revenues. Each raid entailed a huge financial drain upon our resources, partly because fines had toi be paid and partly because money had to be spent on greasing palms. "It has been a constant downhill ride since then, forcing most to opt out of the business," Shafiq says.

So cyber cafes are clearly no longer in the tax department's sights. An official attached to the director general's (new assessees) office says that any exercise to assess new segments will have to first consider whether the cost incurred for carrying out the assessment is feasible.

Says he: "If 20 of our field officers are deputed to assessing these cyber cafes and the results of their assessment indicates that the exercise of bringing them in the tax dragnet is not cost effective, the initiative is not justified, as seems to be the case here."

The big question is: will the city's remaining cyber cafes survive? The ones that have survived think that they may be able to hang in there.

"With many cyber cafes having closed, we think that we may eventually be able to raise charges," says Sompura.