Hi Friends,

Even as I launch this today ( my 80th Birthday ), I realize that there is yet so much to say and do. There is just no time to look back, no time to wonder,"Will anyone read these pages?"

With regards,
Hemen Parekh
27 June 2013

Now as I approach my 90th birthday ( 27 June 2023 ) , I invite you to visit my Digital Avatar ( www.hemenparekh.ai ) – and continue chatting with me , even when I am no more here physically

Friday 28 February 2014

Tax Reforms


Create   Wealth  to   Create   Jobs

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  "

    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 %  tax
> 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


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


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  )  
   


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