Wednesday 23 January 2013

Igniting the Animal Spirit of the Markets - Part 3

Igniting the Animal Spirit of the Markets - Part 3

Pre-2014 Suggestions for our Finance Minister & the Prime Minister


As planned earlier, I'll keep coming up with a series of "quick-gun-Murugan" suggestions. You can see Part 1 of this series in the following link:
Here's my third suggestion:


Changes to Income Tax Laws - 3

A common complaint against the corporate world is that they use the services of lawyers and chartered accountants to ensure that they pay much less by way of income tax than what they ought to as per the law of the land. In this post, we are addressing this situation to a certain extent

Introduce a very minor but significant change in the Income Tax Act for taxing corporates:

  • Definition of Profit and Disclosure of Profit figures:
    • It is known that companies have used the loophole of various laws to come up with different profit figures for different purposes - One for the banker, one or the shareholder, one for income tax authorities, etc. We propose that henceforth the companies will be completely free to come up with any number of profit figures subject to certain basic conditions:
      1. Before disclosing any profit figure of the company(quarterly, half-yearly or annual) to any person or entity, it shall be mandatory to communicate such figures in writing through email to the Registrar of Companies and in case of companies listed on any stock exchange, the communication is to be sent to the Registrar of Companies and to each stock exchange on which the companies shares are listed, as well as to the Securities Exchange Board of India. The chairperson of the Board of Directors, the CEO of the company, the CFO of the company and the Company Secretary shall be jointly and severally responsible for compliance of this provision.
      2. Of the various figures of profit so declared, Income Tax shall be calculated on the highest figure and any dividend declared will be calculated based on the lowest figure.
      3. Stringent conditions for false declarations by the individuals responsbile for compliance of the above shall be applicable in line with suggestions given for individual assessees in the first post of this series (Part 1)
 
Benefits of the above proposals:

  • The temptation to quote different profit figures and "play around with figures" to increase loan eligibility, to decrease taxes, etc. will be eliminated at one go.
  • Corporate governance will improve radically and immediately at least so far as the profit figures are concerned. Those individuals who are responsible for compliance will take care of it!
  • The propensity to "cheat on tax" will be minimised. Again partly due to the simplification, but more so due to the strong deterrent punishment. The threat of actually going to jail will ensure that people remain honest in their income and tax liability declarations.
  • For obvious reasons, NO political party will be able to meaningfully oppose these proposals - The politicians from ALL political parties who oppose these proposals will stand accused of being influenced by the money-bags from corporate lobbies!


Regards,

N
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Sunday 20 January 2013

Oil Pricing Reforms by Stealth - or, is it?

Oil Pricing Reforms by Stealth - or, is it?


Last week saw a sudden attempt at partial deregulation of diesel prices.

Interestingly, the Oil Minister is quoted as saying: "Diesel Prices are NOT de-regulated. However, Oil Marketing Companies are free to introduce minor changes in diesel prices".

People have widely criticised this as an example of "Price decontrol by Stealth". Parties from across the political spectrum have criticised the move. What's noteworthy is that the government is criticised by all and sundry if the government:
  1. don't change oil prices - because the fiscal deficit targets go for a toss
  2. increases prices on a lumpsum basis - because the "Aam Aadmi" will suffer due to such a price shock
  3. proposes notional fixed increases on a periodic basis - because this will imply regular inflationary pressures for the common man
  4. partially decontrols prices by giving the oil marketing companies limited flexibility, as they're trying to do now - because that will be a case of "deregulation by stealth"
  5. deregulates petroleum product pricing totally - because this will be suicidal in a country where millions are already suffering due to huge inflation

I've been trying to figure out as to what the various political parties want the government to do????

Perhaps they should dump PC as finance minister and get hold of someone like PC Sorkar to handle the Finance Ministry - may be some of his magic will help the nation!

In the meantime, here is my prediction of what the minister (and the Oil Marketing Companies) are likely to attempt in the weeks and months to come:

  • Every 15-20 days, increase diesel prices by, say, 50-60 paise per litre.
  • Every 20-25 days, decrease diesel prices by, say, 20-25 paise per litre.
  • Keep doing the above till the diesel prices reach a level where there's NO under-recovery in diesel prices.

I have no information or knowledge as to whether Team Manmohan is indeed trying to do what I've claimed above.

However, I certainly hope that they are planning something along those lines. It will go a long way in managing the fiscal deficit situation!

Regards,


N

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Monday 7 January 2013

Igniting the Animal Spirit of the Markets - Part 2


Igniting the Animal Spirit of the Markets - Part 2

Pre-2014 Suggestions for our FM & the PM



As planned earlier, I'll keep coming up with a series of "quick-gun-Murugan" suggestions. You can see Part 1 of this series in the following link:

  • Pre-2014 suggestions for our FM and PM - Part 1

    Here's my second suggestion:


    Changes to Income Tax Laws - 2

    Introduce the following changes:

    • Exempt income for "Rural Area Citizens"
      • Identify the locations from which the top 99% of the Income Tax is being collected. Chances are bright that it will be around 10-15 cities - Does not matter whether the actual number is 10, 15, or even 100 - it is just a matter of fact. Declare a total INCOME TAX HOLIDAY for FIVE YEARS for all individuals living in other locations which are at least 100 kilometres from these "Top Cities" - Subject to two critical conditions:
        1. The above exemption will be applicable exclusively in those states and union territories which modify their local laws to give the right of taxing Agricultural Income exclusively to the Centre, with the promise that as and when such Income Tax is levied on Agricultural Income, 100% of the Income Tax so collected from Agricultural Income will be transferred to the states.
        2. Stringent conditions for false declarations by the individual assessees in line with suggestions given in the first post of this series (Part 1)

    • Introduce tax on "Agricultural income"  for "Rural Area Citizens" -  who belong to the geographical areas which are covered by the "Income Tax Holiday" in the previous point (This proposal is unlikely to have too many serious objections as the "Total Income", including the "Agricultural Income" is exempt for the next five years. The realisation that the "Agricultural Income" will continue to be taxable after the 5-year Tax Holiday will get highlighted among a small group of "Chartered Accountants", financial newspapers, etc.)
    Benefits of the above proposals:

    • The massive vote bank from the rural areas, especially the "powerful Panchayat Leaders' communities" will be "bowled over".
    • Chances are bright that the changes will be revenue neutral. Till there is a truly significant improvement in the physical and social infrastructure, you're unlikely to have too many people " shifting base" from, say, a Malabar Hills or Boat Club Road or Banjara Hills residence to a "god-forsaken place" just to claim an income tax exemption. Hence the vast majority of "individual income tax collection" will continue to survive and grow at existing rates.
    • The propensity to "cheat on tax" will be minimised. Again partly due to the simplification, but more so due to the strong deterrent punishment. The threat of actually going to jail will ensure that people remain honest in their income and tax liability declarations. Use of technology and mining of data pertaining to investments, expenses, etc. will enable the Income Tax authorities to zero in on those who still try to cheat.
    • There will be an explosion of growth precisely in the areas which have thus far been ignored - After all, the entire organised sector, including the Public Sector giants will want to rush to these "Income-Tax-Exempted Areas" so as to enjoy those benefits - just like you had all those "Special Economic Zones" for the corporates.
    • For obvious reasons, NO political party will be able to meaningfully oppose these proposals - The politicians from ALL political parties who happen to represent the rural constituencies will be under enormous pressure from their own "foot soldiers" to support these proposals.


  

Regards,


N

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Tuesday 1 January 2013

Simple New Year Resolution to handle Personal Finance

Simple New Year Resolution
to handle Personal Finance


At the outset, wish you all a very happy 2013!

We're all aware of the extent to which we tend to execute our new year resolutions. Still, I'd like to give a single resolution for each of you in the arena of Personal Finance.

When we have a single resolution, it not only becomes easier to remember and execute it, but it is also likely to generate more "guilt pangs" if you don't do so.

Hence, here's my "simple" suggestion for each of you:

  • For those of you who are NOT maintaining an account of all your expenses, including day-to-day expenses, start doing so in 2013. If possible, start maintaining your accounts in an Excel File, so that you will be able to easily classify the expenses based on the nature of expense and analyse the same when appropriate.
Or,
  • For those of you who are already maintaining an account of your expenses, start doing a review of these expenses (at least) on a quarterly basis. This will  enable you to identify and understand where your money is going. (I'm suggesting a quarterly review as anything less frequent will be meaningless and anything more frequent will not be done!)
Or,
  • For those of you who are already maintaining an account of your expenses and are also doing a periodic review of these expenses, do a "Pareto Analysis" of your "Top expenses" to explore the possibility of partly reducing those expenses where appropriate (so as to increase your savings) and to partly increase those one or two categories of expenses where you are aware that you need to devote more money, but are not currently doing so.

In December 2013, I would like all of you to ask yourself as to what happened to the above resolution.

Regards,

N

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