Our current Personal Income Tax slabs are :
> Up to Rs
2.0 Lakhs....................... NIL
> 2.1
Lakh -
5.0 Lakh.................... 10
%
> 5.1 Lakh - 10.0 Lakh................... 20 %
> More than
Rs 10 lakh.................... 30 %
That means , the more you earn , the more tax you
pay !
How does this wrong tax regime hurt our economy ?
This regime ,
> Punishes
honest people
> Penalizes
wealth creation
> Encourages
creation of " Black Money "
> Provides
incentive for tax evasion
> Diverts
resources into unproductive assts 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 .
A few years back , the tax regime was worse !
One ended up paying , by way of tax , Rs 0.93 from
every rupee earned !
And after heaping on the honest tax-payers , all such
disincentives , how much does our government collect by way of taxes ?
> Total Tax
Receipts ...................................... Rs 12.4 Lakh
Crores
> Personal
Income Tax contributes....................Rs
2.47 Lakh Crores
Is there a way to raise that Rs 2.47 lakh Crores to Rs
247 Lakh Crores ?
Can we raise it by 100 FOLD ?
I am not an Economist ( my advantage ! )
So , here is my crazy suggestion
" Inverse " the tax slabs as follows :
> Up to Rs 2 lakhs..................... NIL
> 2.1 - 5.0
lakhs...................... 10 %
> 5.1 - 10 lakhs....................... 8 %
> 10.1 - 20
lakhs...................... 6 %
> 20.1 - 50 lakhs..................... 5 %
> 50.1 - 100
lakhs..................... 3 %
> Above 100
lakhs...................... 1 %
What is likely to happen with such " INVERSE TAXATION " regime
?
Following few things :
> Total
personal tax payer base will go up dramatically from current 4
crores
tax-payers
> Total
personal tax collection too , will rise dramatically
> Today ,
only 1 % of 4 crores tax payers ( approx 4 lakhs ) , contribute
nearly 63 %
of personal tax revenue ( of Rs 2.47 lakh crores )
This ratio
will change to , may be , 20 % of tax
payers !
> with this
" INVERSE TAX REGIME " , there will be no incentive to evade
taxes and to
generate " BLACK MONEY "
There will be no resistance to accept ALL payments by cheque / electronic clearance !
There will be no resistance to accept ALL payments by cheque / electronic clearance !
The more you
disclose as your income , the less you pay by way of taxes
> For a
change , we will learn to reward honesty / efficiency / productivity !
No need to
bribe those Income Tax officers !
> Suddenly ,
lakhs of crores of BLACK MONEY , stashed away in bank
lockers / gold
/ land - and , of course those Swiss bank accounts - will ,
suddenly become
" WHITE MONEY " !
> There will
be a huge surge in bank deposits ( - even with , the inevitable
lower
interest rates )
> Banks will
be awash with funds to finance businesses / infrastructure
projects etc
, encouraging entrepreneurs / self-employed to set up new
businesses (
at 2 % interest rates of loans ) and generate millions of jobs
> There will
be a phenomenal rise in Capital Markets
Now couple this " INVERSE TAX REGIME " , with
the following " TAX FREE " investment schemes , by creating Special
Purpose Vehicles ( SPV ) :
> NaMo MEGA-CITY SPV
To implement
Narendra Modi's ambitious project to build 100 smart cities,
at an
investment of Rs 70 lakh crores , in next 5 years
This project
alone will create 5 million new jobs , every year
> RaGa MEGA - JOBS SPV
To implement
Rahul Gandhi's equally ambitious project to provide jobs to
50 million
youth over the next 5 years , at an investment of Rs 50 lakh
crores
In my opinion , such " INVERSE TAX REGIME " ,
coupled with the above mentioned SPVs , will herald an " ECONOMIC ECO - SYSTEM ", which,
> will create
jobs
> shun tax
evasion
> reduce
corruption
> convert all
BLACK MONEY into WHITE MONEY
> channelize
these WHITE MONEY into nation-building projects
To complete this ECO SYSTEM , we need to think " Out of the Box " in
the matter of Corporate Tax Regime , as well
Current trend in industry , all over the world , is to
> Add highly
productive , very expensive machinery to " Automate " all
manufacturing
processes
> Reduce
manpower by increasing " Capital / IT Intensity "
> Hire low
skilled workers by transferring higher " Skills " to machinery
> Outsource
manufacturing to countries where manpower is cheap
> Move out of
" Manufacturing " and shift to " Services "
India cannot swim against this World-wide Trend
We must innovate, to not only survive but to grow in this
scenario
Here is my suggestion :
Set in motion , " INVERSION of JOB REDUCTION " regime , under which ,
" The more
jobs a company creates , the less Corporate Tax it pays "
Example :
> Up to employment of 100 persons ............................... 30 %
> 101 - 500
persons.................................................... 25 %
> 501 - 1000
persons ................................................... 20 %
> 1001 - 5000
persons .................................................. 15 %
> 5001 -
10,000 persons ................................................. 10 %
> Above
10,000 persons ................................................. 5 %
Let us celebrate those who provide employment to large
number of persons
Let us celebrate BIGNESS
Let us create hundreds of WORLD SIZE corporations and take on the World
On top of this , provide additional tax - breaks (
discounts ? ) to corporate as follows :
> Average Age of Employees at 30
years....................... 1 %
> Ave age at 25
years................................................. 2 %
> Ave age at 20 years
................................................. 3 %
Of course , very strict and transparent rules will need to be framed to
compute,
> Number of Employees ( Permanent - not probationers / trainees )
> Average Age ( as on 31 March of Tax year )......etc
But , here is an important aspect of this ,
" Incentivize Job Creation " Scheme
Of course , very strict and transparent rules will need to be framed to
compute,
> Number of Employees ( Permanent - not probationers / trainees )
> Average Age ( as on 31 March of Tax year )......etc
But , here is an important aspect of this ,
" Incentivize Job Creation " Scheme
Today's labour laws make it extremely difficult - if not impossible - for employers to layoff / retrench workmen , if demand shrinks
Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand
So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned
Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand
So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned
And , last but not the least , permit each and every candidate - and the political parties as well - to spend ANY AMOUNT on election campaigns ,
without any restrictions as also accept any amount of Corporate Donations
by cheque
I rest my case !
* hemen parekh
( 27 Feb
2014 / Mumbai )