I am not an economist, I am an engineer.I have never understood taxation.
Income tax applies on individual incomes, however Co-orporate tax applies only on profits. If you are travelling on business purpose it would be counted as business expenses and would not be taxed as it is not part of profit. But if you are travelling as a salaried individual; your income has already been taxed. A usual technique taken by businesses to avoid taxes is take minimum salary and show most of your expenditures as business expense, including your house, your car and your servants.
The difficulty here is how to define profits? Let's start with an example. As an individual, if I work in Hyderabad and visit my family twice an year to Panchkula; is my travel expense due to business or personal reasons? The idea behind HRA (House Rent Allowance) is to consider house renting as a business expense. If I can have a small company registered at my name, I can easily show off these expenses as not part of my profits and avoid taxes. However, as a full time employee, I cannot do so.
Sales tax targets consumption of goods. The more a person consumes luxurious goods, the more he must be taxed. However, we don't want to create unnecessary friction for business purposes. If I am buying steel to make buildings I am not consuming steel and we don't want taxation to be unnecessary burden on capital generation. Moreover, we want food, water and clothing to be affordable and not be taxed. This causes a dilemma again. For example, diesel can be used by cars, but is also used by things that transport food, water and clothing. Should we really tax diesel less?
Having established it is difficult to tax based on income/profits or consumption I would like to explore something different.
No it is not transaction tax.
It is wealth tax.
A society is made up of people, land, water, air and other resources. If the child birth was a social concept instead of personal, each child at its birth would have deserved equal right on the resources just as child deserves equal right on his parental property. However, we have all learned that this rat race of resource acquisition (getting richer) is a necessary part of keeping people motivated. Having said that we all must agree that we want a healthy competition where every child enters this race with almost equal opportunity. Hence there is a need to transfer some funds from have to have nots.
The idea is to tax based on asset ownership. Heavy wealth tax-- the only tax. If you own an asset, you will be taxed. The more natural resource you own, the more you will be taxed. I mean a land with iron mine or high fertility should be taxed more than a dessert land. The more you own a natural resource, the more you will be taxed. If business owns a car; it will pay the tax for the car. The idea is that if a business is making losses even after owning a lot of assets (cars, land, chairs, computers) it must be taxed as it is its own failure to utilize those assets to produce an income. Of course, if he/she rents that asset the owner will pass on the property tax to the renter. Proposed taxation model decides the taxes based on the market value of the company rather than the profits it makes.
But how does this create social buffer or equality. In this taxation system, we have not seen so far any incentive to keep food, water and clothing low cost. The solution to that in my humble opinion is not subsidies, but direct cash transfer.
The question is how much to transfer and to whom?
Second part of the question is easier to answer. To everyone. Why to everyone? Why not just the poor? Because I think it is lot easier to collect higher taxes and give a small amount (just for food and water) to everyone than to determine who is poor reliably. Even if we provide Rs. 100 (3 times the poverty line) to every citizen of India, the cost will be just Rs 12,000 crores. However, with this taxation system the price of food will increase so Rs. 100 may not be sufficient. That is why I said that first part of the question is a little more difficult.
Basically, I don't know how much to transfer. I just know that it must be just enough for minimalistic healthy survival for a recommended family size (2+2 ?). To buy enough food and water, through a minimum cost channel.
But wealth tax is not new. It is has been tried and tested; leading to capital flight in countries like France and others. What can be done to stop the capital flight? Do we want to tax the retirement savings of a salaried person? Do we want to discourage savings because savings is wealth and wealth is tax? In my humble opinion, if we tax just the immovable assets like land, buildings etc the problem of capital flight can be addressed. In fact, all the immovable assets don't have to be immovable. Even things like cars, furniture, computers, equipment, machines can be taxed as it is difficult to move them outside the country. The only things that should be avoided to be taxed are savings, debt investments and investment tools like gold, silver etc. Does this solution fixes all the evils of wealth tax?
Let me know how I am wrong.
Income tax applies on individual incomes, however Co-orporate tax applies only on profits. If you are travelling on business purpose it would be counted as business expenses and would not be taxed as it is not part of profit. But if you are travelling as a salaried individual; your income has already been taxed. A usual technique taken by businesses to avoid taxes is take minimum salary and show most of your expenditures as business expense, including your house, your car and your servants.
The difficulty here is how to define profits? Let's start with an example. As an individual, if I work in Hyderabad and visit my family twice an year to Panchkula; is my travel expense due to business or personal reasons? The idea behind HRA (House Rent Allowance) is to consider house renting as a business expense. If I can have a small company registered at my name, I can easily show off these expenses as not part of my profits and avoid taxes. However, as a full time employee, I cannot do so.
Sales tax targets consumption of goods. The more a person consumes luxurious goods, the more he must be taxed. However, we don't want to create unnecessary friction for business purposes. If I am buying steel to make buildings I am not consuming steel and we don't want taxation to be unnecessary burden on capital generation. Moreover, we want food, water and clothing to be affordable and not be taxed. This causes a dilemma again. For example, diesel can be used by cars, but is also used by things that transport food, water and clothing. Should we really tax diesel less?
Having established it is difficult to tax based on income/profits or consumption I would like to explore something different.
No it is not transaction tax.
It is wealth tax.
A society is made up of people, land, water, air and other resources. If the child birth was a social concept instead of personal, each child at its birth would have deserved equal right on the resources just as child deserves equal right on his parental property. However, we have all learned that this rat race of resource acquisition (getting richer) is a necessary part of keeping people motivated. Having said that we all must agree that we want a healthy competition where every child enters this race with almost equal opportunity. Hence there is a need to transfer some funds from have to have nots.
The idea is to tax based on asset ownership. Heavy wealth tax-- the only tax. If you own an asset, you will be taxed. The more natural resource you own, the more you will be taxed. I mean a land with iron mine or high fertility should be taxed more than a dessert land. The more you own a natural resource, the more you will be taxed. If business owns a car; it will pay the tax for the car. The idea is that if a business is making losses even after owning a lot of assets (cars, land, chairs, computers) it must be taxed as it is its own failure to utilize those assets to produce an income. Of course, if he/she rents that asset the owner will pass on the property tax to the renter. Proposed taxation model decides the taxes based on the market value of the company rather than the profits it makes.
But how does this create social buffer or equality. In this taxation system, we have not seen so far any incentive to keep food, water and clothing low cost. The solution to that in my humble opinion is not subsidies, but direct cash transfer.
The question is how much to transfer and to whom?
Second part of the question is easier to answer. To everyone. Why to everyone? Why not just the poor? Because I think it is lot easier to collect higher taxes and give a small amount (just for food and water) to everyone than to determine who is poor reliably. Even if we provide Rs. 100 (3 times the poverty line) to every citizen of India, the cost will be just Rs 12,000 crores. However, with this taxation system the price of food will increase so Rs. 100 may not be sufficient. That is why I said that first part of the question is a little more difficult.
Basically, I don't know how much to transfer. I just know that it must be just enough for minimalistic healthy survival for a recommended family size (2+2 ?). To buy enough food and water, through a minimum cost channel.
But wealth tax is not new. It is has been tried and tested; leading to capital flight in countries like France and others. What can be done to stop the capital flight? Do we want to tax the retirement savings of a salaried person? Do we want to discourage savings because savings is wealth and wealth is tax? In my humble opinion, if we tax just the immovable assets like land, buildings etc the problem of capital flight can be addressed. In fact, all the immovable assets don't have to be immovable. Even things like cars, furniture, computers, equipment, machines can be taxed as it is difficult to move them outside the country. The only things that should be avoided to be taxed are savings, debt investments and investment tools like gold, silver etc. Does this solution fixes all the evils of wealth tax?
Let me know how I am wrong.
