Law Street in The Economic Times (December)

Dear Readers,

Calvin and Hobbes will always be my eternal favourites. LinkedIn now has a group of Calvin and Hobbes devotees, well I am one of them. In India, not all are lucky to get a school education, and unlike Calvin, many of these kids do want to go to school. We do pay a separate education cess, I would love to know how it actually gets utilised. Wouldn't you?

Click here for some thought provoking ideas on how we could best pay our taxes. And if the government does want to speed up spending how about giving us a tax holiday or a month or so?

Happy New Year, readers. I shall post again in the new year.

PS: Kay Bell has included this on her blog as part of the Tax Carnival. Click here for many more exciting tax articles from across the world.

Warm regards,
Lubna

PS: The column is pasted below as well.

Direct taxes, with a difference

Eliminate the middleman
Funds must directly reach the poor
There must be accountability of tax spend

The economic slow down has had its effect even on the Indian economy, the terror strikes have momentarily shattered the spirit of India, even as it seeks to rise united from such strife. Thus, it appears that 2008 will end on a sombre note. In fact, this columnist wonders whether the world will change again by the time the column, which is penned much in advance, sees the light of the day.

Zenobia Aunty is a firm believer in the “Glass is always half-full” philosophy. “Every dark cloud has a silver lining”, she says. And she adds her own phrase, “You can see a rainbow only after the storm”. Perhaps this is true, even though her niece is still not fully inclined to believe in this philosophy and would prefer not to face a storm, even for a rainbow. Yet, life is a roller-coaster with its ups and downs.

Post the strife in Bombay, Zenobia Aunty and her niece were intrigued by one placard which stood out in a peace procession. It read: No more taxes. Why should we pay taxes, if we can’t be protected? Given the situation and the emotions holding sway over Bombayites (I prefer this term), this outcry did seem justified. One can only hope that Bombay and India heal, heal soon, and concrete steps are taken that will benefit us all. Right now, we do seem to be grappling for answers and there is a cacophony of bewildered sounds each time the telly is switched on.

In the US, tax payers are crying over the use of their money for bail-outs. Surfing the net for the tax implications of bail-outs, Zenobia Aunty came across a unique suggestion by US Congressman Louie Gohmert – a tax holiday for ‘we the people’. In short, a two month tax holiday for the hoi-polloi of the United States of America.

In his press release Congressman Gohmert states: “By instating a temporary tax holiday, we could electrify the American economy and provide overwhelming relief to taxpayers, all for less than the cost of the current failed bailout system."

He continues: “Think about how much you would have if you didn't have any social security or income tax withheld from your pay check, or if you didn't have to pay those taxes for January and February! Americans could take and invest their own money where they believe it should go - to paying down mortgages, buying a new car, making credit card payments. The economy would get relief where it is needed the most. Why try to decide how to prevent foreclosures? Just give taxpayers their own money to catch up on their payments. Those in lower income brackets who are hit the hardest by the FICA tax would see huge money back, and then they could choose who should benefit from their hard earned money. Even the self-employed and small business owners would receive a fantastic amount of their own much-needed money, and they will be able to invest that back into their businesses and even create the ability to hire more people.” Gohmert is currently preparing a bill to declare the tax holiday for January and February of 2009 and is also gathering support at the same time.

I agree with this concept in so many ways. Loyal readers may recall how Zenobia Aunty had mentioned that she doesn’t really know what happens to the education cess which she coughs up as part of her tax dues. Now mind you, this is collected for a specific purpose – for educating India, education hopefully will create a more aware India and she is all for it.

Now, if instead of just paying this cess, if she could deposit it at a school of her choice, wouldn’t that be better? If we all know that the entire sum meant for the poor recipient does not reach him or her, wouldn’t this direct payment system be better? True, a handful of people may fake such payments. But, I am sure patriotism burns strongly within each of us – at least in those of us who pay our taxes, and if it is for the right cause, most of us would pay the money willingly. Perhaps select schools could set up e-bank accounts, where the deposits could be directly made? This would eliminate any middleman.

Gurucharan Das, in one of his columns has written that India spends 14% of GDP in subsidies for the poor, which is more than enough to wipe out poverty. But poverty persists because subsidies leak out through corruption.

Zenobia Aunty had earlier held that perhaps tax sops even for donations in kind, such as a computer manufacturing company donating computers to a government aided school should be entitled to tax sops. While, this could be introduced, perhaps it is time to spread the net wider and make it possible for us to give directly a portion of our tax for what it is meant for. And what better way to start than through education cess? But, is anyone listening?

This column can best end with the words of Rabindranath Tagore: Where the mind is led forward by thee into ever-widening thought and action; Into that heaven of freedom, my Father, let my country awake.