The Prime Minister,
India.

A big believer and a staunch supporter of the fact that we need to Clean up India; clean it of the corruption, the black marketers and from those who only force you to live by cash. The steps that are being taken to achieve this goal, full support from the people of India and yes, a lot of effort needed to reach the final destination. A few thoughts on what has been and opportunities”

Banking:
The population today is probably 10 times more than the last demonetization and the utilization of the 500 and 1000 Re notes is at 90% against 8%. If the Demonetisation was planned, adequate currency should have been made available not only in 2000 Re notes, but also 100 and 50 Re Notes. The gap of these numbers is what created an unnecessary panic.

Now one realizes that this is dependent on the capacity, however that is something that probably needs to be looked at. Our capacity on printing is probably a few decades old, which needs to be ramped up for the future.

Banking Hours:
To ensure that the Government was with the people, should have been declared that there will be no alternate Saturday closure of the Banks until December end. If required, extended until March. Public Holidays are good, but why make it a 5 day week, when we know we are short in resources. Many countries have implemented extended banking hours, where people work in shifts, this was a golden opportunity to bring that factor in.

ATM’s
Known fact that our ATM coverage is extremely short. Bank spaces are not sufficient, not  in very safe places. An area that can be looked at is expanding ATMs to Supermarkets, registered Hospitals, Hypermarkets, Supermarkets, big stores, Colleges. This will eventually reduce the need for people to come to banks for withdrawls / deposits and in fact promote only that much cash withdrawl as is required. People take more cash just to avoid coming to banks. Branches of foreign banks may be controlled, however the ATM spread should be permitted.

Cross Banking:
In addition to the above, cross bank ATM usage should be promoted. Minimal charges of say Re 1 per transaction or even free. One does not necessarily have to find their own banks to withdraw cash. Use of cross banking if not to all, should be free among nationalized banks, with non-nationalized banks allowing a specific number of transactions every month.

Debit / Credit Cards:
The use of plastic is the future, however to make it attractive, we need to get rid of the charges. Debit cards should be free of charge, with no charges on usage (unless a BTT exists). This will promote people to go for such facilities and if there are adequate locations which promote the use of Debit cards, people will have no hesitation to pay. Debit cards of course being the more preferred option, as Credit takes the population into a liability situation, where they can end up spending more than what they earn and create a generation of debt. Of course the money that the Companies make on the charges is another issue.

Jan Dhan Accounts:
A thought could have been to populate all the Jan Dhan Accounts with say Rs 10,000 per account. All holders are below the poverty line, that would have given them enough cash to sustain their needs. This could have been done as an Advance and offset with the deposits that people put in their Jan Dhan Accounts. Of course, chances are that with Rs 10,000 in deposit, the accounts would have been out of reach of all the people who have rotated their funds in these accounts

Use of Pan Cards over a certain limit.
A simpler option is a mandatory use of Credit / Debit cards for all transactions over Rs 20,000. In a country like India, where the per capita income is $1,400.00 any person effecting a payment over Rs 20,000 will be earning more than this and will need a bank account. This will stop all cash transactions in restaurants, weddings, Hotels and reduce the need for the IT Department to review individual spends, as all transactions are traceable via cheque or card. It will also raise a question, as to why a person does not use an official channel for payments.

The Aadhar Card should be phased out and a Pan Card concept implemented from day one. Every person will need a bank account, every person will have an income. Pan Cards to be the only reference number used every where, including any benefits. This gets rid of managing Aadhar Cards / Ration Cards / Welfare Cards and so on. This could eventually be looked at combining with the Voter Cards, which again, many know are duplicated. A Pan Card provides greater control and flexibility of usage not to mention the reduced cost of management and duplication of efforts.

Income Tax Act:
Needs a major overhaul. The current mechanism of various exemptions and the lack of a proper social security structure is a major dampner in the average person paying Income Taxes. An absolute simplified version is of the need and a thought could be:

  1. Scrap the entire Income Tax act as is today. Filled with loopholes and requires too much maintenance.
  2. Bring a simplified version where every person who earns pays tax. Rates could be:
    1. Income upto 25 Lakhs – 5%
    2. 25 – 50 Lakhs – 10%
    3. Over 50 Lakhs – 15%
    4. Implement a banking tax of 1-2 % on all bank transactions.

This should include every citizen of India and including Agriculture Income which today is exempt and a big source of unreported income. This not only reduces the tax burden on the average individual, but most important, brings the entire network into the tax bracket.

Simultaneously, the taxes charged on purchases should be a flat % age that should be printed on the invoice. The MRP is extremely misleading and no one knows what the value of the product is and how many taxes are built in. The GST would control this, however with a simplified tax version with one flat tax rate Pan India, people know what they are paying. Accordingly with the BTT, the GST could be a smaller figure considering all of India is in the Tax bracket.

  1. The number of exemptions today are akin to a Masters Degree in their own right. Every political party has added them to appease the voter. What we need is not 1,000 exemptions to see how we can save Tax, but a simplified version of Tax, which tells us how much we paid, what purchasing power is left in our hands. Should be few and simple:

Exemptions to be under a few categories:

  • Contribution to Relief funds – 100% exemption, irrespective of the value. This is paid from Income, so no limits

 

  • Contribution to Govt sponsored Funds / Bills / Savings schemes: 100% Exempt. Vesting period of 5 – 7 years. If withdrawn before, standard tax bracket. If withdrawn after the vesting period, applicable for Banking Transaction Tax only. The Govt has earned money during that time.

 

  • Contribution to Provident Fund – 100% Exempt to any value by the Employee. Employer contribution standard as is. Similar vesting period concept, say 10 years. If withdrawn before, standard tax bracket, if after vesting period, a tax rate of 5% on withdrawl (irrespective of value) + BTT.

 

  • Implement a Social Security concept in addition to the PF – Exempted again 100%.

This should be mandatory for all tax payers, with a minimal %age (optional for employees to contribute more). With an increased %age of tax paying population, the funds collected will offset any drops. Funds should be deposited to any Indian registered fund management corporation (LIC for example), who invest the funds in investment options. This could be limited to a %age of the salary which even the Employers contribute to (a deductible attraction for them). Vesting period until 55 years. Withdrwal after retirement subject to a 5 Tax, + a BTT as this acts as a life time pension and the persons will plan only that amount that is needed.

  • Education Fees for dependent children for education in India (Any registered school / college) – 100% exemption to the amount of fee paid. This not only promotes education, but also moves the transaction to declared income, as the individual will need proof of payments.

 

  • The current structure of Gratuity limit of 24 months should also be scrapped. If a person works for 30 years, he should be entitled to 30 years of Gratuity. Should be part of the standard tax deduction

 

  • Amount spent on vacation travel – cost of tickets. Exempt again. Current setup is twice in four years. Why penalize people for wanting to go on vacation.

This will also stop all the classifications on the salary structure that employers use today to classify taxable and non taxable income. It should be simply Basic + a Standard Allowance, not to mention the fact that people will actually pay tax as it is transparent. Qualified accountants will actually spend their time on quality accounting and reporting rather than telling people how to play around.

Many more thoughts to improve India, surely with a billion people suggesting we cannot go wrong.

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