A study paper for reducing the Tax and duty levies for the poor and below the

poverty line segment of Andhraites

By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

PROBLEM Definition for this study paper

1 Incidence of tax and duties direct and embedded paid by the bottom 40 % of Indian population supposed to be below the poverty line - through consumption of Goods and services is it in proportion to the benefit that they get? Is it proportionate to their income? Or better still, should they pay any tax/duty at all? 2 If the benefits are disproportionate to the pay out in this class of people , are there some alternative models to reduce their pay outs so that they can improve their standard of living?

Key Analyses
1 How much are the Indians and People of AP paying as Taxes and duties?

Item Total per capita tax/duty paid by an Indian based on Union Budget of Mar 2007
Gross tax revenue of central Govt Population estimated in 2007-08 Per capita central tax /duty AP state taxes Population of AP in 2007 estimated Per capita state taxes of AP citizen Total taxes and duties levies collection per capita, from Andhra Citizen Tax evasion estimated Total Tax levy on an Andhra Citizen

Budget estimates for 2007-08 (Rs Crores)

548,112 Crores 1130 million 4851 Rs per caita Rs.31,399 Crores 75 million 4187 Rs per capita 9048 Rs per capita 25% 12,064 Rs per capita

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Version.1 (Saturday, October 13, 2007)

A study paper for reducing the Tax and duty levies for the poor and below the poverty line segment of Andhraites
By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

2 What is the value they are getting in return for the taxes and duties they pay? The trickle down effect of development spending is too low: The bottom 40 % of populations access to and consumption of resources like water, electricity and services like healthcare and quality education is disproportionately low. If this is true, then why should they pay any tax/duty at all? Many of the studies have shown substantial leakages in collection of revenue as well as in the Government Spending. In fact there are substantial leakages, both on the way up and down. A good example is the FOOD for WORK program. The citizen gets back only a small share of what he/she pays. The second reason is the quality of the services a citizen receives is also not up to the mark. The third reason is the services are cornered by the high and mighty and the common man from rural area does not get his due share 3 Principle of duty and taxes who should pay taxes and how much? Income tax viewpoint As per Vijay Kelkar committee report , individuals drawing less than 1 lakh per year need not pay any Income Tax. See table below:

If a person is not expected to pay Income tax if he/she earns less than 1 lakh per annum, should a BPL (Below the Poverty Line) person pay duties and taxes on goods and services consumed by him?

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A study paper for reducing the Tax and duty levies for the poor and below the poverty line segment of Andhraites
By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

Corporate Tax viewpoint If a corporate is incurring losses, it is exempt from corporate taxes and can claim exemption even from TDS. If an individual makes losses i.e. his/her income is less than his/her expenseswhy should that person pay any tax/duty on goods and services consumed? Exporters viewpoint In case of an exporters, the govt is committed to giving inputs and even funds , at international prices and has found ways of reimbursing the levies. So why cant we create similar model for reimbursing the levies paid by those who should not be paying any levies- ie bottom 40 % of population Citizen view point According to a recent press report: Can you imagine surviving on just Rs 20 per day? Many of us spend many times that amount on maybe a snack every day. Yet, 836 million people in India live on Rs 20 a day. That's right. 836 million Indians, according to a recent government-commissioned study, live on Rs 20 a day. That is all they can afford. If it costs more than Rs 20 per day, 77 per cent of this country's population cannot afford it. The Key Question is: If 77 % of our population earns Rs 7,200 per year, why is the per capita tax Rs 12,064 per year? The Luxury VS essential commodity view point The Tax philosophy at the excise and Sales Tax (VAT) level, in the early 80s and prior to that, was that the luxury goods must be taxed heavily so that the poor (and the essential commodities) can be spared. Due to rationalization of the tax structure, the slabs in the tax structure have been drastically reduced. This has resulted in a substantial reduction in the gap between the tax rate of essential and luxury goods and thereby demolishing the noble tax philosophies of the post independent India.

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Version.1 (Saturday, October 13, 2007)

A study paper for reducing the Tax and duty levies for the poor and below the poverty line segment of Andhraites
By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

What can be done?

1 Estimate tax and duty levies direct and embedded in the list of goods and services consumed by bottom 40 % of population (with per capita income of Rs.7200/- per year): Initiate a study by reputed bodies like National Institute of Public Finance and Policy New Delhi. The PER CAPITA consumption of goods and services are available through National Sample Survey Organization (NSSO). 61st round for 2004-05 is enclosed in the Annexure I. This survey shows the following: Out of a total spend PER CAPITA per month of Rs.1016/-, an Andhraite in Rural India spent only Rs.323/- on Food and the balance was spent on highly taxed non-durable goods and services. Assuming an average tax/duty levy of 20 % including excise duty, VAT and corporate tax (from the profit of the producer) the average tax spends will be Rs .230/- per month or Rs.2760/per year. Since the tax burden is skewed in favor of the rich, we can assume that the tax paid by the bottom half of the population is 50% of the average i.e. Rs.1380/- per year which works out to 20% of the annual earning of Rs.7200/-. Paying 20% (of the annual income) tax levy, especially when it does not bring back any value to them, is a key concern and is responsible for reducing the disposable income in the hands of the poor. 2 Create a chain of privately managed stores for White Card (BPL Family) WHITE STORES Bogus White Card members should be weeded out first. After weeding them out, issue them SMART CARDS with pre-set limits on purchase of basic commodities. Outlets managed by Private retailers called WHITE STORESshould be set up exclusively for White Card members in lieu of the current PDS (Public Distribution System). Private manufacturers will be asked to set up manufacturing only for these outlets OR will be reimbursed the tax paid based on sales to white card holders, like exporters. BPL families will be given quota like the Jawans who purchase from the Army Canteens. A similar set of outlets must be created for purchase of services by this segment.

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Version.1 (Saturday, October 13, 2007)

A study paper for reducing the Tax and duty levies for the poor and below the poverty line segment of Andhraites
By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

The concept of exclusive budget outlets is popular in Japan and many manufacturers produce only for these outlets
100 Yen Shops In Japan

100 Yen Shops (the Japanese model of discount stores) sell a wide range of products for 105 Yen per item (100 Yen plus 5 percent consumption tax). This corresponds to roughly one US dollar per item, making the shops a great source for travelers and residents on a budget. There are thousands of 100 Yen Shops across Japan, ranging in size from multi-storey "department stores" to small corners in shopping malls. Market leader Daiso operates over two thousand stores nationwide and pursues an aggressive expansion policy. (http://www.japan-guide.com/e/e2077.html) Another good example is the Army Canteen, which supplies duty-exempted items to a select category of people. The canteen purchasing team leverages the economics of large buying and manages to get minimal prices for even the non-essential commodities and is well managed unlike the Public Distribution System (PDS). Any retail chains major cost elements are rentals and cost of footfall acquisition. Government can provide space for the WHITE stores even offer current PDS outlets on lease. Footfall is guaranteed upto the white card holders assuming 67% of families are BPL in AP, the minimum footfall will be 10 million families in AP alone ( assuming 67% 0f 75 million people are BPL and assuming average family size of 5). Government can auction the retail chain like the auction system for liquor stores in AP. The retail store owner will have to supply specified items at duty free prices to white card holders and claim a drawback from the government. In addition the store owner can sell other items( items without duty free pricing) to both white card holders and to general public. Store chain can aggregate the demand and buy at attractive prices like the army canteen and thereby offer discounted prices even on items without duty free pricing.

Contd.

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Version.1 (Saturday, October 13, 2007)

A study paper for reducing the Tax and duty levies for the poor and below the poverty line segment of Andhraites
By Dr M.V. .Mysoora Reddy, Member Of Parliament, Rajya Sabha from AP & T Murali dharan, Chairman TMI group, Hyderabad

PER CAPITA CONSUMPTION PER MONTH IN 2004-05 as as per NSSO survey 61 st round Annexure I

Sl No 1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14

Item of consumption FOOD ITEMS ONLY Rice PDS Rice - Other sources Wheat atta-non PDS Suji Rawa Jowar & Products ALL CEREALS ALL PULSES MILK Edible oil Group Egg/Fish/Meat Vegetables Fruits Sugar Beverages Total Food

Qty Unit of qty PER MONTH PER CAPITA 2.5 Kg 8.4 Kg 0.14 Kg 0.11 Kg 0.48 Kg 12.03 Kg 0.7 Kg 3.05 Lit Lit 0.55 Kg Nil Kg Nil Kg Nil Kg 0.46 Kg Nil Kg FOOD ONLY

Value Rs 13.07 90.82 1.8 1.46 3.60 113.60 19.40 32.83 28.04 25.00 34.00 9.47 8.05 33.00 323.00

2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8

NON FOOD Tobacco Intoxicants Fuel & Cigars Clothing Education Medical Entertainment Household consumables Consumer services 2.9 excluding conveyance 2.10 Conveyance 2.11 Rent Total Non-Food 3 Food + Non Food

12.70 11.95 88.29 43.40 26.03 40.42 24.35 23.34 67.35 60.30 117.94 595.31 1018.55 To Be Verified

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