Consumer Issues
Punjab to act against online marketing of cigarettes
Punjab on Thursday became the first state in the country to initiate criminal proceeding against companies marketing cigarettes online despite a ban on it.
 
Health Minister Surjit Kumar Jayani sought people's cooperation with the police in registering first information reports (FIRs) against e-commerce companies on the basis of the bills sent by companies.
 
To implement the Cigarette and Other Tobacco Products Act effectively, all state drug inspectors have been directed to lodge complaints against the illegal sale of e-cigarettes.
 
The district police chiefs have been directed to ensure promptness in initiating legal action against such companies, a government statement said.

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Ajay Singh now SpiceJet chief, firm garners Rs.300-crore funding
Budget passenger carrier SpiceJet on Thursday said one of its founders, Ajay Singh, has been appointed as chairman and that the low-cost carrier (LCC) has managed to garner Rs.300 crore funding.
 
According to the company, in a meeting held on Thursday its board of directors appointed Ajay Singh and his wife Shiwani Singh as directors. 
 
Harsha Vardhana Singh, who is an adjunct professor of international and public affairs at Columbia University, New York, has been given the charge of an independent director.
 
Till now Ajay Singh was functioning as a director of the company after buying out the stake of the erstwhile promoter Kalanithi Maran and KAL Airways earlier in the year.
 
On February 24, the airline's ownership was transferred to Ajay Singh from erstwhile promoter Kalanithi Maran and KAL Airways.
 
On January 29, Maran sold his majority stake to Ajay Singh. 
 
Earlier on January 15, the airline's board approved the plans to allow Maran together with KAL Airways to off-load their stake in the company to Ajay Singh after regulatory clearances.
 
Maran, together with KAL Airways, held 58.4 percent stake in SpiceJet, while Ajay Singh had a 4.5 percent stake. Maran acquired SpiceJet for close to Rs.750 crore.
 
In December 2014, Maran made it clear that no fresh bailout package could be put together for the airline in which nearly $400 million or Rs.2,500 crore has been invested since 2010.
 
This is Ajay Singh's second innings with the airlines which he co-founded with Bhupendra Kansagra in 2005. However, he sold his stake along with Kansagra and assets buyout specialist Wilbur Ross in 2010 to Sun Group's Maran.
 
"The board also took on record mobilization of additional funding of Rs.300 crore through various sources," the company was quoted in a statement.
 
Under the company's revival plan fresh funds were infused into the airline after the takeover was completed. 
 
The infusion of funds worth Rs.1,500 crore was expected in a staggered manner till April.
 
Some estimates place the infused amount at Rs.500 crore that was invested in the airline in the first tranche.
 
The airline plans to raise funds up to Rs.1,500 crore through issue of securities.
 
"(Board) also took on record company’s efforts to increase its fleet size to 45-50 aircraft by the financial year ending March 2016," the statement added.
 
The airline's fleet size late last year stood at 55 before a financial crises lead it to truncate it. Currently, the fleet size stands at 35 which comprises 20 Boeing aircraft and 15 Bombardier Q400s.
 
In April, the airline leased out three Boeing-737s from a Czech company on a short-term wet-lease to meet the summer rush.
 
The company has also increased the number of its flights to 270 in the current summer schedule from 210 operated during the winter period.

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Tax Tentacles – 7: Tax the source and not the person
There are obvious advantages in adopting the idea of diverting income at source or even in making the bank as the account keeper and remitting the tax after a proper assessment. This is the concluding part of the seven part series on tax reforms
 
Every taxation system basically pre-supposes the taxpayer’s willingness to pay taxes, to have an accurate book keeping behavior and to calculate their taxable income based on objective data. It is obvious this is too much to expect and the consequence is only a hostile department, which is unable to accept any statement without suspicion. Therefore, what is required for honest taxpayers is, help from the government to maintain clear financial data by a record-keeping system and a receipt and expense statement system. Now we have the technology to get the banks to act as the account keeper of individuals and provide an annual balance sheet.  Japan has initiated the plan to help taxpayers to maintain accounts
 
In the US, the National Taxpayer Advocate had proposed the general concept of IRS to generate tax returns for individuals who volunteered to be covered by the system on the basis of (1) income reported on information returns and (2) information on filing status and dependents provided by taxpayers on a new simpler tax form. IRS would then mail the returns and refunds or tax bills to taxpayers, who would need to review their returns and notify IRS whether they agreed with the return information. However, I was surprised note that this proposal did not find favour with the Technology Policy Institute
 
However, several revenue bodies (i.e. Chile, Denmark, Finland, Malta, New Zealand, Norway, and Sweden) provide a capability that is able to generate, at year-end, a fully completed tax return (or its equivalent) in electronic and/or paper form for the majority of taxpayers required to file tax returns. Three bodies (i.e. Singapore, South Africa, Spain, and Turkey) achieved this outcome in 2011 for between 30-50% of their personal taxpayers as reported by OECD. UK has an office of Tax Simplification and an ongoing project for creating a simpler fairer system. UK also considers corporate tax as a separate item streamlined to invite investment WEIRD (Western, Educated, Industrial, Rich and Democratic) people need not be the only models. We can develop our own model if we can analyse the data intelligently.
 
There are obvious advantages in adopting the idea of diverting income at source or even in making the bank as the account keeper and remitting the tax after a proper assessment. In short, tax the source and not the person and benefits are plenty. These are…
 
Financial transactions are transparent and fully recorded in the bank accounts.
 
The tax is paid through the bank account of the taxpayer only
 
Status of the taxpayer will be irrelevant
 
No chance of generation of untaxed income
 
Uniform rate of tax and everyone contributes to nation building
 
Unorganised sector is organised through bank accounts
 
Expands base instead of squeezing those already in the net
 
Rebates possible through selection of transactions to tax
 
No computation or complicated calculation involved
 
There will be no gender bias. At present income derived on asset transferred to spouse is added to the income of the spouse to levy a higher rate of tax on his income. This really affects the husband who is considerate enough to provide funds to a non-working wife. If the income is taxed at the source this situation will not arise.
 
Not making criminals of citizens for inadvertent omissions. For example everyone is expected to apply for a PAN number and if it is not allotted [which is the duty of the Income Tax Officer] the taxpayer will be penalised.
 
Only contra I can think of is the agency problem, which is already there. Remember the free pizza offer, if there is no bill. It is not a gift but just to make the customer as the shop supervisor! Businesses, which act as the tax collector may pay salary in cash outside the account to avoid TDS. However, when the business itself is made the assessee to pay the salary distribution tax, it would not be worthwhile for them to do that as the deduction of salary in computing their income will be affected. There are legal strategies to deal with this
 
More importantly these changes can be made without the need to throw out the present Income Tax Act. All that is needed is to make a few amendments. Sections similar to 115-O have to be enacted to cover salaries and interest. Reference to status can be omitted. Provision has to be made to strengthen the assessment of business income as a separate source and for registration of the business units. This has to be based on evidence. The present return forms themselves distinguish the steams of income and so it should not be a difficult task to isolate business incomes for focused treatment as in UK.
 

Nudge

Governments around the world are grappling with ambitious transformation agendas, Finance Ministers delight in manipulating the financial behaviour of taxpayers by changing tax rates. Governors of central banks wish to control borrowing behaviours by changing interest rates. People do not even budge to keep their surroundings clean without a nudge. We now have toolkits of behavioural science to reinforce social norms and behaviour. 
 
It is reported that littering has been reduced by 46% in Denmark by nudge thinking. It is only by restoring common sense to the government servants that we can achieve any transformation. The greatest challenge is creating an institutional culture that that will deliver service without flaws.
     
The transformation invokes two metaphors - one who tries to extract something forcefully from a cow and another who milks it, leaving most of it for the calf. Can we transform the butcher into a milkmaid?
 
There was a dairy farmer who was concerned about the drop in production of milk in his cattle farm.  Therefore, he went to consult the ultimate resource: a theoretical physicist. The physicist listened to his problem, asked a few questions, and then said he would take the assignment, and that it would take only a few hours to solve the problem. A few weeks later, the physicist phoned the farmer, "I've got the answer. The solution turned out to be a bit more complicated than I thought and I'm presenting it at this afternoon's Theory Seminar". At the seminar, the farmer finds a handful of people drinking tea and munching cookies - none of whom look like a farmer. As the talk begins, the physicist approaches the blackboard and draws a big circle. "First, we assume a spherical cow...". I hope you do not think that my idea is just like that - a spherical cash cow sans tentacles!
 
(This is the concluding part of a seven-part series on the vexing Indian tax system and the path to genuine reforms, adapted from Justice S Rangarajan Memorial Lecture in Bangalore delivered recently)
 
You may also want to read…
 
 
 
 
 
(Justice TNC Rangarajan is a former judge of Madras and Andhra Pradesh High Courts. Earlier, for more than 20 years, he was a Judicial Member of Income Tax Appellate Tribunal.)

 

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COMMENTS

SANKARAN MANIKUTTY

2 years ago

The entire series has been truly informative and, what is more, oriented towards giving solutions rather than criticizing anyone. I enjoyed reading the series. Of course, nothing less wopuld have been expected from a person of the calibre of Justice Rangarajan. Thanks to Moneylife for bringing out this series.

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