Sunday, December 16, 2007

Happy New Year - Law street in The Economic Times, December 2007

Hi Readers,

Happy New Year. There is a nip in the air, and I sort of envy Calvin sitting with his favourite pal before a roaring fire. Well, I always wanted to be Calvin.....
As always, click to read the column in The Economic Times
Or scroll down to read the same.

Law Street
The Economic Times, December 28, 2007
Happy New Year
The fog rolls in, only it is not the mist but pollution. The smog envelopes tree tops, newly constructed high-rises and even the morning joggers who have dared to venture out. Zenobia Aunty and Spot haven’t, they keep indoors these days, much to the chagrin of other household members. So, let us just say it was a joyous moment for all of us, when Aunty became a member of one of the various social networking sites that abound in cyberspace. This kept her blissfully occupied throughout the day and indeed most of the night. In this case, she haughtily informs us that it is not a social networking site, but a professional networking site. Well, I guess it has its uses.
She posted a question on what people would like their governments to do in the sphere of taxation in the New Year and the answers rolled in from across the globe. The one common thread in the replies she got from the US, UK, France, South Africa, India, Iceland (frankly speaking I have lost count of the innumerable countries the replies rolled in from) was: We would like our governments to use our money in a responsible manner. That apart, there were many more suggestions on what governments should do.
Let us begin with tax slabs. Said a member from the US: There are hundreds of brackets! It is silly. The lowest tax bracket that really made me angry is for a head of a household, if you make US$11,200 you have to pay US$1,200 as taxes! That is absurd! No wonder they poor don’t want to work, they can’t afford to! What is the point? How in the world can anyone in today’s world live on that income and pay those taxes? Yet, there is no equal percentage applied to the wealthy. They can earn as much as they please and only pay 35%. The scales are very unbalanced. The proposal on the table for change is to eliminate all the hundreds of levels and go to just three for each category type (single, married, etc.)”.
Well said. In India, we have three basic slab rates. The basic threshold limit for tax trigger now stands increased at Rs 1.10 lakh. In respect of women and senior citizens, this basic threshold limit is Rs 1.45 lakh and Rs 1.95 lakh respectively. However, the maximum marginal rate of 30% applies to those earning more than Rs 2.5 lakh. With a taxable income of just Rs 2.5 lakh, the honest taxpayer has to cough up Rs 77,500 leaving him a paltry sum of just 1.72 lakh. Well, unlike the US, in India, there is no cushion for the unemployed, so they just have to work and if they are good citizens also pay their taxes. Zenobia Aunty really feels that this must change. Only those earning above Rs 10 lakh or so must fall in the highest tax bracket. However, she is willing to negotiate with the North Block on this issue. In addition to the 3% education cess levied on all those subject to tax, those with an income of Rs 10 lakh have to pay a surcharge of 10%. Thus, the maximum marginal rate of tax is now 33.99%. Here, Zenobia Aunty suggests a two-tier level of surcharge — a lower surcharge for income between Rs 10-25 lakh and a higher surcharge for income beyond this limit.
Says another member of this network, also from India: “If exporters are clamouring for relief because the rupee is appreciating, I want salaried individuals to get some respite because of the rising interest rates.” Currently, in case of a self-occupied property (financed by a housing loan) taken after April 1, 1999 for acquisition or construction, the borrower can claim interest deduction up to Rs 1.50 lakh per year, subject to meeting certain conditions. Zenobia Aunty hopes for doubling of this limit to Rs 3 lakh.
Yet another participant wrote back with three distinct sets of wish lists. A ‘realistic’ wish list, a ‘pipe dream’ wish list and an ‘outright whacky’ wish list. Some of these were real gems. For instance, this gentleman suggests that the tax laws should permit a set off of the tax refunds against the advance tax payable, if the refund (which is not rejected by the tax authorities) is not received within thirty days. His ‘pipe dream’ wish list includes: Cut red tape, reduce bureaucracy, simplify tax structures, tax procedures, tax return formats and tax refund procedures. Of course, his whacky list says: Abolish Income tax and replace the same with a 1% expenditure tax. This will boost government revenues manifold, as this will cover not just segments which are currently outside the income tax net, but also those that fall under the net, but still have huge levels of ‘untaxed’ income. Well, Zenobia Aunty admits that there are pros and cons to this list and leaves it at that.
Now if only Santa Claus could grant all these wishes.

1 comment:

Anonymous said...

Are you from India?