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.




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