There is a Better Way !

Yesterday's Economic Times carries an article , titled : "No Coal with Ciggies  ?  Cos are in a Tizzy ! “

Apparently NDA government wants to ban the " Paan - Beedi " shops all over the country ( numbering 2.5 million ) , to stop selling any other item if they want to sell cigarettes  !

Only exclusive “ tobacco-product shops “ or exclusive “ other items shops “ !

No mixing 

One more crazy idea ?  Of course  !

This is no way to reduce consumption of Cigarettes ( - to save people from tobacco induced cancer )

Here is the RIGHT  WAY :

Going Up  in  Smoke ? 

https://myblogepage.blogspot.com/2013/08/going-up-in-smoke.html

It is high time our Policy Makers think of  “ long term “  solutions and give up knee-jerk approach that ruin the livelihood of  2.5 million Pan-Beedi shop-owners  !

If we cannot create new jobs , at least can we save those 2.5 million “ self employed “ ?

By all means , if you want to reduce consumption of cigarettes , do introduce a “ Sin Tax “ as applicable in UAE from today , where tobacco and energy drinks will be taxed at 100 per cent and soft drinks at 50 per cent 

02  Oct  2017

www.hemenparekh.in / blogs

Waiting to be proved wrong !

In my earlier blog :

(  EESL:  Lease Cars /  Do not Buy  / 

https://myblogepage.blogspot.in/2017/08/eesl-  lease-cars-do-not-buy.html  )  ,

I had assumed following figures :

·         ALL government departmental cars are driver driven

·         Run ( max ) of 100 km per day ( 20,000 km in 200 working days )

·         At 12,000 km / year , total cost ( fixed + variable ) per km works out to Rs 22 , for a self driven petrol car ( no salary of a chauffer ) -  CRISIL Research Study

·         It would be safe to assume that this would be Rs 25 / km for an Electric car

·         As against this , cost of hailing a UBER / OLA works out to Rs 19 / km  !

Now consider these assumptions in light of the following :

·         Two days back , EESL placed a order for purchase of 10,000 electric cars , at Rs 11.2 lakh each ( Total Value = Rs 1,120 crore )

·         EESL will lease out these cars to Government Departments / Agencies , at a lease rent of Rs 45,000 per month ( Rs 540,000 per year ) – which , I assume , does not include a driver ( Hindustan Times / 30 Sept )

·         So , that works out to Rs 27 per km ,( for 20,000 km / year ) , for the leasing department , without the salary of the driver

·         If the salary of that “ departmental driver “ is ( say ) Rs 300,000 per year ( Rs 25,000 per month , inclusive of all perks / retirement benefits / leave etc ) , then that would add another Rs 15 / km for annual 200,00  km

·         So , the total cost to the government department leasing the car from EESL , adds up to Rs 42 / km ( Rs 27 + Rs 15 )

QUESTIONS :

If my assumptions are correct ( I look forward to EESL proving me wrong ! ), then following questions arise :

#   Why should government departments incur a cost / km of Rs 42 , when it could

     hire a UBER / OLA , for Rs 19 / km ?  An extra of Rs 23 / km !

#   Eventually , when EESL manages to replace existing 500,000 government owned

    ( petrol / diesel ) cars with Electric Cars , this extra cost could add up to Rs

     2,300 Crore/year (5 Lakh cars * 20,000 km per year * Rs 23 / km difference )

      

     Is this justified by saying : Since EESL is a government-owned company , this is

     only transferring the money from one pocket to another :  ?

#   As per report in Hindustan Times ( 30 Sept ) , Government departments are

     currently paying Rs 50,000 per month for leasing cars from private agencies

    ( about 150,000 cars , out of a total of 500,000 cars )

    Is it not entirely possible – and nearly certain – that , if EESL tender was for “

    Leasing  instead of Buying “ , TATA and M&M , would have quoted Rs 15 per

    km ( inclusive of a driver ) , thereby saving the government , Rs 2,700 crore per

    year   ( 5 lakh cars * 20,000  km/year * Rs 27 / km : :  Rs 42 – Rs 15 )  ?

#   Cost of Lithium-ion Battery constitutes between 50 % - 70 % of the Selling Price

    of an Electric car . And this cost is dipping by approx. 20 % per year

    So , the cost of that battery ( to TATA ) must be around Rs 6 lakh today , out of

   its quoted price of Rs 11.2 lakh per car

   Now , if  5,000 cars are likely to be delivered in 2018 and remaining 5,000 in 2019

   then the battery costs would drop to below Rs  5 lakh by 2019

   Did the EESL incorporate a “ PRICE   DE-ESCALATION  CLAUSE “ , in its tender ?

I hope Arnab Goswami ( or anchor of any other TV Channel ) gets to read this and then say :

NATION  WANTS  TO  KNOW  !

01    Oct  2017

  www.hemenparekh.in / blogs

   

  

    

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

www.hemenparekh.in / blogs