Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do.

There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

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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