Law & Lemonade

Don’t squeeze too hard

There’s an old saying that if you squeeze a lemon hard enough, you’ll get every drop of juice out. But there’s a limit. One lemon still can’t make lemonade for five people, even if an elephant steps on it.

People forget this all the time. Countries, governments and courts often demand more money than others can realistically pay. Iran wants compensation from the US. The US wants Iran’s enriched uranium. India once tried a “retrospective tax” that was supposed to bring in huge amounts of money, but instead scared away foreign investors.

Now India’s Supreme Court has ordered online gaming companies to pay ₹2.5 lakh crore. But the companies are accused of avoiding only ₹1.12 lakh crore in GST. The rest is penalty added at the highest possible rate. That’s a huge amount of squeezing. The entire online gaming industry has never even earned ₹25,000 crore in a year. So how can it pay such a giant fine? And what is the point of a punishment if paying it is impossible?

America understood this idea long ago. In 1791, its Constitution banned “excessive fines.” That means punishments should not be unreasonable.

The same rule works in everyday dealmaking too. When asking for something, you should know what the other side can actually give. You can argue about what they are willing to give, but there’s a hard limit to what is possible. If you push too far, you may destroy the very thing that was valuable in the first place — like killing the goose that lays golden eggs.

A few years ago, US tax authorities fined an old woman $3 million because she did not report a Swiss bank account left to her by her father. Normally, the fine would have been only $10,000. But officials chose the harshest punishment because the law allowed it.

Just because something is legal does not always mean it is fair. Smart people understand the difference between what is “lawful” and what is “just.”

Nobody drives a car at full speed all the time — it would be dangerous. In the same way, governments, judges and negotiators should not always take the harshest possible position. Sometimes, squeezing less makes more sense.

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