What would happen ?

What would happen if Personal Income Tax was totally abolished ?

Before answering that question , let us refer to what Shri Jaitleyji told the Consultative Committee attached to the Finance Ministry , yesterday :

·         The number of tax payers rose to 6.26 crore in 2016-17 from 4.72 crore in 2012-13

·         The revenue collections in case of Direct Taxes rose to Rs 8.5 lakh*crore during 2016-17 at a growth rate of 14.5 %

·         1100 searches were made from Nov 9 2016 to Jan 10 , 2017 , resulting in seizure of Rs 610 crore including cash of Rs 513 crore

·         Undisclosed Income of Rs 5,400 crore was detected and about 400 cases referred to the Enforcement Directorate and the CBI for proper action

·         The government is committed to widen the tax base by encouraging and incentivizing the NEW TAX PAYERS

So , from this , one thing is obvious

Government will need to forego a revenue of Rs 8.5 lakh*crore if Personal Income Tax was abolished – something very measurable

Followed by a question :

In such an event , from where would the government find the money to finance all its Infrastructure Development projects ?

What may not be so obvious to the Policy Makers is that , such a BOLD / UN-ORTHODOX / OUT-OF-THE-BOX , step would set in motion a VIRTUOUS  CIRCLE , where following things will happen :

*   There will be no incentive for tax evasion / avoidance 

     This will be a permanent  FULL STOP to future generation of Black Money

*   With NIL personal tax to pay , all the cash ( black money , no doubt ! ) ,
    lying in bank lockers , will get deposited in official bank accounts , within
    one year

*   All payments will be received by cheques and deposited in Bank Accounts

*   All stashed away Black Money will , somehow , on its own , find its way in bank

     accounts, - including Black Money lying in Foreign Banks , making SIT redundant !

     

*   Savings rate will go up dramatically

*   That will lead to greater purchasing power for all people

*   Leading to higher domestic consumption of FMCG / Consumer Durables

*   This will result in huge collection of GST , offsetting revenue losses

*   Demand will go up , boosting manufacturing

*   With rise in manufacturing , sub-contracting / outsourcing will increase , giving a big

    boost to MSME sector

 

*   If manufacturing goes up , employment / self-employment ,  will go up

*   For a change , we as a Nation , will learn to celebrate , 

     #    Wealth Creation as a means to reduce poverty

     #    World-size Companies to take on the World

*   There will be less pressure on demands for higher salaries / wages

*   If salaries / wages do not rise , inflation will ease

*   Cost of manufacturing too , will go down

*   Era of " Low Cost Economy " will set in ( VIRTUOUS CIRCLE ? )

*   Savings will move from gold / land to Financial Assets

*   With a low cost structure , our products / services  will become , internationally

    competitive and exports will go up

*   That will improve our current negative Trade Balance / CAD

*   This ( abolition of Personal Income Tax ) MUST be coupled with SPVs for  :

     #    Infrastructure Projects ( especially Smart Cities / Corridors etc )

     #    Educational Institutions

     #     Skill Development Institutions

     #     Health care Facilities

     #     Solar Power ( Eqpt Mfr / Generation / Transmission / Distribution )

     #     Digital India ( Broadband ) Network


     No questions must be asked as to the source of money invested in such SPVs

    All income ( Corporate Income or Personal Income by way of dividends / interests etc

    ) arising out of investments made in such SPV , must be tax-exempted

SPVs , themselves , must not need to pay any taxes for 10 years

·        

Take away incentive to evade taxes , thereby stopping future generation

      of Black Money

*    Channel all existing Black Money ( locked up in assets , in India or

      abroad ) into the main stream of economy ( Infrastructure Building )

*    Enable current annual inflow of inward remittances from overseas

      Indians to go up from $ 70 Billion to $ 700 Billion

*    Through rapid development of Infrastructure , generate Self

      Employment for 12 million youth every year

*    Drastically reduce FDI requirement for rapid growth of economy

*    By cutting down on government outlay for Infrastructure , reduce govt

      borrowing from market and consequent debt servicing

*    Raise GDP to 10 % by 2018

Why  is  such a BOLD  step urgently required ?

Current tax regime ,

*   Punishes honest people

*   Penalizes wealth creation

*   Encourages creation of " Black Money "

*   Provides incentive for tax evasion

*   Diverts resources into unproductive assets such as cash/gold/land etc

*   Stops people from working harder / smarter

With this regime , people tend to ask :

*   Why should I work hard and earn more , if the more I earn the more I

      pay  ?

*   Why not evade paying taxes by hiding real income ?

*   How will I ever be able to buy that 1 room flat costing Rs 50 lakhs ? I

     need Rs 20 lakhs by way of black money to buy it ! Where do I get

     that ?

*   For every rupee that the government collects from me as tax , only 15

     paise come back to me in the form of civic amenities .

Dear  Policy Makers :

This is the SIMPLEST – EASIEST – CHEAPEST way to revive our ECONOMY , in a permanent manner , without ever needing any other stimulus

There is no stimulus greater than the Human Greed !

30  Sept  2017

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