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

Will this work ? Your Guess ?

Business Standard ( 30 Sept ) carries following news report :

“ I-T cracks down on black money stashed abroad “

Indian assets of tax evaders can be attached & confiscated against undisclosed foreign income or assets

The Income Tax (I-T) department has decided on an aggressive plan under the black money law to nab tax evaders who have undisclosed income or stashed assets abroad. 

In an internal communication, the Central Board of Direct Taxes (CBDT) told I-T officials that the spotlight should be on criminal consequences of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

In the guidelines, it clarified that the Act allowed attaching and confiscating black money holders’ Indian assets against their undisclosed foreign income or assets under the black money law. It also said these evaders could face separate prosecution under the Prevention of Money Laundering Act (PMLA). 

The move follows poor results in detecting undisclosed foreign assets and delay in concluding pending matters under the Black Money Act, which came into effect in 2015. According to the official data, only 52 cases have been identified so far. Of these, nine are from Mumbai alone.

I-T officials said there was a lack of clarity in the existing framework, which this week’s guidelines have explained. The internal communication specified that the tax department can attach and confiscate the “proceeds of crime” equivalent in value held within the country to recover dues.

What is your guess :  Will this unearth those “ hidden / undisclosed foreign assets “  ?

MY GUESS :  YES !  BUT IN ABOUT 30 YEARS  !

On the other hand , Government could get those holders of Undisclosed Foreign Assets to come forward and declare $ 1000 BILLION , within 3 MONTHS , if it would just “ COPY “ the Indonesian Method !

Unbelievable ? 

Believe it  !  Read :

·         Indonesiashows the Way

     https://myblogepage.blogspot.com/2016/12/indonesia-shows-way.html

=======================================================

·         Howto raise $ 500 Billion ?

     https://myblogepage.blogspot.com/2017/09/how-to-raise-500-billion.html

·         Why  a begging  bowl ?

    https://myblogepage.blogspot.com/2017/05/why-begging-bowl.html

·         Nibbling  on crumbs  ?

    https://myblogepage.blogspot.com/2017/08/nibbling-on-crumbs.html

30  Sept  2017

www.hemenparekh.in / blogs

  

Why can’t we institutionalize Coalition ?

Economic Times ( 29 Sept ) carries following news report titled :

Better Growth in Coalition Govts : Reddy

A coalition government that produced consensus on policy-making was probably better than the one with a majority as far as economic growth was concerned, former RBI governor YV Reddy has said. 

Since economic liberalisation, beginning 1991 under the premiership of Narasimha Rao, India’s GDP growth rate was the highest in fiscal 2007, when it touched 9.6%, under the UPA led by Manmohan Singh. Under the new series, GDP grew 10.55% in FY2010.

 
The previous highest growth rate of 10.2% in fiscal 1989 was recorded under Rajiv Gandhi’s tenure, data from the Central Statistics Office revealed.

 
Interestingly, the highest growth in India from 1990 to 2014 was really during coalition governments,’’ Reddy told an audience in Washington.

“ So, in a way it is consensus based...in Indian situation, a coalition probably produces better economic results than a strong government,”  he said.

 
To buttress his argument about the benefits of a coalition government, Reddy said the administration handled the 1991 currency crisis well, of which he was part as a bureaucrat.

“ The remarkable thing was that despite an unstable political situation, they managed a political consensus for whatever was needed to manage it successfully,’’ said Reddy.

My friend , Gurudatta is much more analytical in examining the virtues of a COALITION GOVERNMENT

After reading my following blog :

RevolutionThrough Coalition Government ?

 

https://myblogepage.blogspot.com/2017/09/revolution-through-coalition-government.html

here is what he wrote :

Advantages of Constitutional Coalition Government 

·          Being a part of the govt. all parties will be accountable for non-performance.

·           By the same logic, for any achievements during such a Govt’s tenure, the credit will be shared by them all, irrespective of their size, thus promoting positivity and unity of purpose.

·          Even accountability for non-implementation of the pre-poll promises will be collective.

·           Unlike in the past, the tendency of raking up old issues/past failures by way of investigation/court cases etc. of any of the constituents will be curbed, saving immense national resources. Besides, more time will be available for constructive discussions, decisions and prompt implementation of the projects.

·           A lot of legislature time & other resources wasted on endless debates, allegations and counter-allegations will be saved for constructive work, enabling faster implementation & outcome of the plans.

·           The Speakers of the respective legislative houses will be able to carry on their responsibility with equanimity and fairness.

·           Moves, suggestions or new ideas brought up by any of the constituents, irrespective of their individual strength but solely on the merit and test of national interest, would be taken up.

·           The party with highest number of elected members will naturally seek to retain important ministries, irrespective of the comparative capability of their own elected members vis-à-vis other parties’ members with equal or better merit. This can somewhat be defused by the giving Dy Ministership to other party candidates but depending on the merits.

·          Such sweeping change in the governance, can we also expect to have better candidates appointed to head the GOI entities, governors, vice-presidents, presidents and judges of the courts? Most probably.

I believe , this is an  “ IDEA  WHOSE  TIME  HAS  COME “  !

Those in favour , please “ RAISE  YOUR  HAND “  - and your VOICE  !

29  Sept  2017

www.hemenparekh.in / blogs