My First Article - Is 4 percent cut in Cenvat on Cars justified?

We know that recently the government effected 4 percent cut in Cenvat which brings down the prices of cars. I wanted to put forth my view that this is bad for everyone (Government, People and even auto-mobile companies) in long run.

First, hardly months back, international oil prices skyrocketed to $150 per barrel resulting in huge subsidy burden on oil exploration companies like ONGC, oil processing and marketing companies like HPCL, IOCL and government. Prices were artificially administered to low levels because of huge dependence of everyone on petrol and diesel. So bringing down the prices of cars is like an incentive to further increase that dependence. Though the prices have nose dived now to $50 per barrel which may be attributed to recession in developed economies, we must keep in mind that once world economy starts growing, prices may even go beyond $150 per barrel. This is a certainty in future if not now. Even conservative estimates predict that at current levels of consumption, oil reserves don't last beyond this century.

Secondly, many cities are unable to cope up even current traffic levels. Add to this, the huge number of vehicles that get added every month under normal conditions without any incentives from government. So best way forward is to encourage mass transportation projects like BRTS (Bus Rapid Transit System), Metro Rail. Speaking fairly, steps have already been taken in this direction by several governments. But these are getting delayed due to land acquisition problems, shortage of funds or in some cases, lack of willingness on part of authorities. Also, Mass transportation stands better environmentally than individual transportation.

One reason behind 4 percent cut in Cenvat could be saving the automobile industry and thus millions of jobs associated with it. Lets not make the mistake what the Americans made earlier. They are suffering the consequences now. With no economical mass transportation available, every American was forced to buy a car. This made them heavily dependent on oil. Many even allege that America went to war against Iraq only for oil! This helped in growth of auto-mobile giants like Ford, General Motors generating millions of jobs. But this approach is not viable in long run. As soon as oil prices rise, demand for auto-mobiles slackens. Even if the automobile sector is bailed out now by the government, same situation arises later. Its like postponing the inevitable. Thus its better to think of alternative solutions for this problem.

This can be solved by ensuring creation of millions of new jobs in viable industries. First, electric cars have to be encouraged. This can be done by giving incentives to automobile companies to invest in development of electric cars. One may point out that Indian power basket contains 75% power produced using coal, which is another natural resource available in limited quantity and also biggest polluter of environment. Also one may ask why not cars that run on liquid hydrogen. As researchers are still unable to zoom in on a suitable non-conventional energy source, it might be wise to go for electric cars. When suitable non-conventional energy source is found, just produce electricity using it and connect to the power grid. This turns the electric cars into a greener option. It also avoids designing cars that run specifically on a particular non-conventional energy source like liquid hydrogen.

Secondly, even electric cars use similar components like those that run on petrol or diesel. Hence, automobile industry needn't die down. Instead, it gets a new lease of life. Also, it is environmentally viable!

Next step could be huge investments in mass transportation in Tier-II cities. Just imagine, if every Tier-II city in India embarks on a public transportation pro gramme, it will not only be a huge asset later but also spur the growth of economy. Huge investment required could be the hurdle. But innovative solutions to this problem are possible given the vast amount of talent India has.

Has someone already found it?

My First Discussion - Are you paying Income Tax?

Yes, its that time of the year when everyone is worried about tax. As first time tax-payers, we (until recently students) are also worried about the amount of tax that needs to be paid. We had a good discussion on this which I want to share here.

Ravi: Hi guys. Do you know that I need not pay a single rupee as tax this year?

Sunny: You are joking, Aren't you?. You are earning 3.5lakhs this year. So even after 1 lakh exemption under section 80C, you need to pay tax on remaining 1 lakh.

Ravi: HRA and Medical reimbursements are also exempted from tax. Since I am declaring rent of Rs10,000 per month, my income falls below 1.5 lakh limit.

Sunny: Rent is only around Rs2,500. Isn't it?

Ravi: But I can get rent receipts declaring that I am paying a rent of Rs10,000 . Come on, its quite common these days. Its a public secret that people supplying fake medical bills, rent receipts are in good demand.

Sunny: Aren't you encouraging such persons? You are justifying tax evasion since it is rampant. Is that what you are trying to say?

Ravi: Whats the purpose of paying tax? It goes into politician pockets. If you pay hundred rupees, hardly fifty rupees is put to proper usage. So I can instead give it to a charitable trust and actually do more good.

Sunny: Government has started several innovative projects like NREGP, JNNURM, NRHM, Golden Quadrilateral which no trust does. Many of them are getting curtailed due to shortage of funds. This situation is forcing the government to increase revenue through surcharges and widening the tax net. I agree that there is a lot of scope for improvement. We should help the government by plugging loopholes rather than trying to make unfair use of them. One can't be sure that trusts make proper use of money. Also how many tax evaders actually are donating money to trusts. And how many of them are just giving it as an excuse for tax evasion. If this form of government is inefficient, then the blame lies with us. How many of us got registered as voters? How many of them are voting? And how many of them are actually exercising it properly by going through candidates background and parties manifestoes?

Ravi: We cant change this system in short term. As long as the system is inefficient, there is no use paying tax. I don't know what other tax evaders do. But this is what I want to do. I shall give the money to a needful person, mentor him and free him from depending on government's assistance.

Sunny: What if someone loots you and justifies it by saying that the money looted is distributed to the poor. What if a corrupt official says that he is only using the money to improve someone's lives. Tax evasion is also similar to that. At least we benefited from the government by way of lower fees, jobs due to tax concessions to IT and Electronics industries. We are earning far higher salaries than national average. We have sufficient financial capacity to actually pay the tax and also spare some amount to help someone. By the way, we are so called educated citizens of India.

Ravi: Truly speaking, I realize now that I am only trying to find some reasons for justifying tax evasion. I didn't realize how severe a problem it is. Since everyone is doing it, it didn't appear to me as such a big scam.

Sunny: We might have done several mistakes until now or even doing still. But lets not do a mistake knowingly. Then, there is no difference between us and fraudsters.

(End of Conversation)

After Mumbai attacks, many started justifying tax evasion on the pretext that the government wasn't able to protect them. But they don't realize the difficulties in running a government considering its vast responsibilities. Yes, there are several problems plaguing it. There are also several solutions. One needs to carefully chose the proper one which improves existing one rather than trying to destroy it.