Thursday, April 5, 2012

The Hyderabad Diaries - The Breathing Tax (Inspired by Raja's comment)

I am inspired by Raja's comment on my previous post, to write a full fledged piece on the tax on breathing and other such related items. This could give some ideas to the government on how to increase revenue.

A friend of mine who works in the Income Tax department estimates roughly that of the 1.2 billion or 120 crores population in India (say 70 crores leaving out those who may not qualify) only about 1.5 crore pay Income Tax (or 3% as per some report I read as opposed to 45% in the USA). Now this identified segment is the flogging horse for the government - the one that cannot escape and therefore has to bear the brunt. (The net will not widen directly to the other segments - as it would be too obvious and votes will fall- so indirect taxes would be added deviously to other segments.)

One would like to think that the government is being rather uncreative about this whole thing. Raise taxes and sell assets seem to be the two main ways to raise money (for the government). (To raise money for the individual, both forms serve - one by harassing tax payers and the other by kickbacks on asset sale.)  The breathing tax idea opens a whole new aspect to taxes. Akin to the times of the jagirdars in the Nizam era who apparently levied almost 200 types of taxes including car tax (for the jagirdars car), horse tax (for the jagirdar's horse) etc, its time the government looked at new ways to tax.

Now what does the government increase its taxes on? Typically the respected ministry would identify the captured class of Income Tax payees and put its sleuths to see how they appear to be enjoying their money. Aha, they are buying clothes! Clothes tax. They are also dry cleaning the clothes! Dry cleaning tax. They have no money and are using loan money and credit cards to buy! Aha, tax on credit card usage and loans. They are eating out in restaurants m'lord. Tax the hotels and restaurants. They are buying houses. Property tax. They are buying goods and services. Value added tax and service tax. Any activity that the individual in the tax net does is taxed in one way or another - education, coaching classes, cinema, jewellery, transport, fuel, holidays, hotels. Any form of enjoyment is taxed in multiple ways. The government could look at other essential items that are currently freely available.

One day in the Department to Raise New Taxes
Sleuths,' the honorable ministry would say. 'Find out what services the tax payer is enjoying so we can widen the net.'
Sleuths check the list.
'Water is already being taxed. Food is being taxed. Fire is being taxed. The one that is left out so far is air saar'.
'Eh, air?'
'Imagine saar,' the sleuth would say, 'these people are freely breathing air that the government is supplying. We must set up a department to investigate how much air there is and how much is being consumed by these tax paying categories so we can tax them.'
The respectable man form the ministry nodded.
'Let's set up the National Department for Consumption of Air with all sorts of sinecure postings to all sorts of criminal minded chaps. Let the air quality be divided into four main categories - 1) VIP air which would be free for all VIPs, their families, their security men, their cronies and such other stuff, 2) taxable air for the tax paying chaps who would have to get their unique breathing numbers so they can breathe, 3) industrial quality air for industries and 4) free air for the poor which can be of ordinary quality.'
'Yes saar. But how do we differentiate the air saar? In fact the tax paying chaps get the worst air saar - polluted and dangerous. Will they pay saar?'
'Who else will pay? We cannot charge them directly from the government so we will privatise the air manufacture and distribution companies. No one will question them. They can hire all kinds of goondas to recover their money. We cannot do that.'
'How to begin saar?'
'The first thing we must do is start selling out breathing air manufacture and distribution licenses to our close people without any auction. Once they have licenses they can set up air processing units all over the country. We can even set up SEZs for them. They can raise funds through the public route or loans at concessional rates. Our public can invest in the air plants also. These units will process air through several filters. Each unit will cost hundreds of thousands of crores.'
'Why will they make such an investment saar?'
'Because it is very lucrative to everyone concerned. No one knows how much these plants cost and what they will do finally. All specs are to be given by us so they actually do not need to invest anything. We can add all sorts of costs and make them totally unviable. Because they are setting it up for national interest we will give them a long tax holiday of thirty years or a return of 15 times their inflated investments - whichever comes first. A 10% commission on all future earnings to be earmarked for developmental expenses of course.'
'How will they recover the investment saar?'
'They can charge the public on the air they sell in whichever way they please. They can stipulate user charges, come up with new data for loss of revenue, loss of opportunity and raise the charges and worst case, we will make good their investment. After all its about the health of our country. The public won't mind.'
'Will the public pay saar?'
'The free public will only pay indirect taxes. The tax paying will have to pay user charges - just like toll on road. Everybody is happy. Later we can think of life tax for this kind of a thing as well.'
'Saar, this is good saar. I think people will tighten their belts, or rather, tighten the noose around the necks saar.'
'Good. Any other avenues like this that we can see the public enjoying without paying taxes?'
'Yes saar. There is one more area which can generate money saar. It is being allowed freely saar. Lots of energy being waster without being used saar'
'What is that?'
'Sex energy saar. There is no tax on sex saar. People are using this service freely which is resulting in our burgeoning population saar. We can tax people on sex saar.'
'Okay. Tax all the tax paying fellows on sex. Sell sex rights to some private company that will pay us money to ensure proper use of this sexual energy. Make three or four bands again on this. Free sex for the bottom class but. They can have as much sex as they want.'
'One problem saar'.
'The tax paying crowd is having little sex saar. All their time is going into paying taxes saar. We may not be able to tax them on having sex saar.'
'So what is the problem. Tax them for not having sex.'

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