Tuesday, 3 May 2016

What would they do ?

For the year 2012-13, Personal Income Tax paid by individuals is as follows :

(  Number of Tax payers  ) (  Total tax amount paid - Rs Crore )

(   3                    )........ (        437     ).... Super Rich

(  5430               )........  (     8,907     ).... Rich

(  14  Lakh          )........  (  253,656    ).... Middle  Class

(  111  Lakh        )........   (   23,000    ).... Neo Middle ( Minimum Slab )

(  162  Lakh        ).........   (   NIL        )....  Poor  ( Tax Exempt )

(   Total = 287  Lakh ).........(   2.86 lakh*Crore  )  

Now , I have repeatedly advocated total abolition of Personal Income Tax

So , it would be natural to ask :

If these people did not have to pay personal income tax , then what would they do with this ( Rs 2.86 lakh*crore ) tax amount saved ?


#    3 Super Rich individuals

They might buy some more gold / ornaments / flats or take more holidays abroad

Of course , the expenditure for the purchase of flats and ornaments will help the economy

#    5430  Rich  persons

Some of them would also indulge in buying gold / flats

Many would buy luxury cars / luxury goods ( Consumer Durables , like domestic appliances or Consumables like expensive clothes / ornaments / purses etc )

All of this expenditure will , no doubt , help the economy grow and create more jobs

#     14  lakh Middle Class persons

From the above data , it is obvious that it is this Middle Class persons ( 14 lakhs ) , who bear the brunt of the Personal Tax collection !

And , as Rajiv Gandhi once said , for every rupee of tax that they pay , only 15 paise worth of " Civic Services " ( infrastructure / drinking water / health-care  etc ), returns to them !

And , on top of everything , they have no " Social Security " of any kind !

So , I believe that they would invest the saved tax money in bank fixed deposits / mutual funds / life insurance / Public Provident Fund etc , to ensure a small - but steady - source of income after retirement

Now , if Rs 2 lakh*crore of this tax saving were to become " Bank Deposits ", it would enable these persons to raise their " Credit Rating / Loan Repayment Capacity " and take out bigger loans for homes / cars etc

This would give a huge boost to our economy !

That would also raise our Domestic Saving Rate , once again , above 30 %

That would also relieve some pressure on the Government to introduce a forced " Pension Regime "

And , if this group spends some more money in sending their girl-child to better schools , they would be investing in a better future of their children - a highly desirable type of expenditure  !

And do not discount the long term social impact of investing for retirement

In most middle class Indian families , parents today depend upon their SONS , to look after them in their old age . Male child is THE only retirement assurance for these people

When tax savings make it possible for them to become independent of their male child , the desire to have a male child ( at the cost of aborting a female child ) , will go down !

#   111 lakh , Neo - Middle Class persons

They have just entered the minimum tax slab ( 10 % ? )

Without doubt , they would spend the saved tax money in buying items of daily NECESSITY - food being the foremost  ! May be some cheap clothes !

By being able to meet the Cost of Living  a little better , these persons would be able to live a dignified life - even if living in slum-like conditions !

Their tax-saving would just not be enough for them to book a 250 sq ft flat !

And since there would be no Personal Income Tax to be paid, no one would want to hide any income ! Every rupee of income would get accounted for in official banking channels !

Other than small daily purchases , large CASH payments will disappear !
Official payments ( through electronic transfer / credit cards / mobile wallets etc ) will dramatically go up  !

Banks will get huge amounts of deposits and be in a position to engage in micro - lending !

P2P lending platforms will take off like a rocket  ! Especially those " RICH " and the " SUPER RICH " will now start lending to Start Ups and Self Employed Entrepreneurs , through this P2P web sites

I request Shri Arun Jaitleyji to seriously consider my suggestion in the forthcoming Central Budget

I am confident that not a single Political Party will oppose this , either in Lok Sabha or in Rajya Sabha

It will be a political " Harakiri " for anyone to oppose !


www.hemenparekh.in / blogs

04  May  2016


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