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 ?
MY GUESS :
# 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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