Note : My intention is not to convey my idea as good/correct one. My intention is to direct the way in which tax policies might need to focused upon. I understand that there might be flaws in my idea, but I think what I am proposing will suite to large scale personnel involved in service based Corporates.
If we observe the present scenario of the country, we will notice that all the MNCs are based in Metropolitan Cities.To my understanding MNCs are establishing their business keeping in mind the benefits and the business convenience. However to ensure ease of doing business for MNC`s central government may not be able to afford further increase in the special economic zones and lose out on government revenue.
Considering the fact that MNCs are only based in metropolitan cities people in the country are facing the following major problems:
- Most of the people are trying to reside in metropolitan cities for the sake of employment. Metropolitan cities are getting overloaded with the people than their actual capacity.
- As metropolitan cities offer employment opportunities. More the number of people, more will be the number of vehicles and this will lead to increase in pollution.
- More will be the number of people the faster will be the depletion of natural resources.
- Land prices are touching peak.
- Unavailability of Quality, Healthy and affordable life in metropolitan cities, particularly for those who are below poverty line.
- Development disparities among the cities.
- There might be chances of non-cooperation between the state and central government due to allotment of SEZ to limited states.
- Due to lack of revenue generation in the non metropolitan cities, not much is spend on infrastructure.
- More the number of people in such cities more are the chances of spreading of some sensitive diseases.
- Even government may not be able to give equal governance and justice to all the cities. For example in how many non metropolitan cities, one can observe CCTV`s at traffic signals ?
Well the list is endless.
Considering the above problems, I made an attempt to find the solution and arrived to an idea. In my opinion my idea solves all the above problems.
Most people migrate to metropolitan cities for the sake of earning/employment. And most of the companies are established in metropolitan cities due to advantage of taxes in SEZ locations. So our focus should be to provide tax benifits to MNC`s for establishing business in non metropolitan cities by which we will be simultaneously taking care care of employment/earning opportunities for common citizens of India. If we consider the expenses of common citizens in metropolitan cities and non metropolitan cities. Obviously, will be higher in metropolitan cities . And many people living in metropolitan cities are paying high rental charges while they might have their own residence in their home towns(which is not a metropolitan city). And they are living away from families and travelling very frequently(again additional expenses) to meet family members. So if government plans to recover the same amount of money from individuals to establish MNC`s in their home towns it will result in lots of smiles among individuals. Individuals can live with their families for entire life.
In simple Central Government should recover approximately same amount of tax from individuals which otherwise would have been collected from MNC`s. To be much more specific, tax burden of individuals should be commensurate with the business convenience and development of cities. The more the city is developed the less tax burden on individuals. One may need to be conscious while intending to apply these concepts to rural areas where agriculture is done. If this concept is applied in rural areas, it may impact the country very badly.
One has to be very clear, Concept is aiming on MNC`s and may be applied for companies which are having or are giving equally more benefit to the city. The tax liability of MNC`s should be gradually increased and transferred to MNC`s back again depending on the development status of the respective cities from the individuals. For the purpose of deciding the tax liability, there are following three important factors to consider.
1. The tax liability of the company to be borne by the individuals.
2. Development status of city.
3. Overall tax liability of individual and Corporate.
Lets discuss in detail about how the above points should be considered.
1. The tax liability of the company to be borne by the individuals
Tax liability of the company will be paid as advance tax and assessed tax. Advance tax is an estimated tax which company is going to bear. Only advance tax which the company is going to pay may be transferred to Individuals/Employees. Because employees may change their employer at any time. Company should be careful in estimating the advance tax.
There can be two possible scenarios
a. Overestimation of advance tax: Overestimation of advance tax results in higher payment of tax to be borne by employees. Although additional payment of tax can be refunded back to the individuals, In some cases individuals may suffer till the tax refund is received. There should be significant penalty on companies for material overestimation of tax liability. May be estimation should not deviate by more than 5% to 8%.
b. Underestimation of advance tax: Underestimation of advance tax will result in tax liability on companies and not on individuals. Because individuals may change jobs or newly joined in the company and practically not feasible to collect from them. Underestimation of tax is an additional cash outflow to the company.
Rate at which Corporate Tax to be borne by Individuals (ECTR)
= (Estimated advance tax for the period/Total Salary paid to employees)x100
Here ECTR means Employee Corporate Tax Rate
2. Development Status of the City
Here it is important to decide the quantum of corporate tax to be transferred to individuals based on development status of the city. Relevance of development status may be understood by the following examples.
Tax to be borne by Individuals Corporate
If city development status is high Only Individual tax Total Corporate Tax
If city is not developed at all Individual Tax and ECT No Tax liability
If city is 30%* developed Employee Tax and 70% of ECT 30% of Total Corporate Tax
*30% may be called as Development Factor(DF).
To my understanding development status of the city may be measured by the market value of land in such particular city. It may not be fair to measure the development status of the city based on per capita income of individuals in the city because too much income disparities are exciting in some areas. It may result in wrong judgment. Development Factor may be calculated as specified below
Development Factor(DF) = 1-((B-C)/(B-A))
Where
A = Average Land value in City which have cheaper land value compared to all other cities.
B = Average Land value in the City which have most costlier land compared to all other cities.
C = Average Land value in the City for which development factor is required.
3. Overall tax liability of individual and Corporate.
A. Tax liability of Corporate (Total Advance Tax estimated(DF)) and (+Deficit Tax Estimated or - Surplus Tax estimated)
B. Tax liability of Individuals/Employees Total other tax liability of Individuals + ECT ; Where ECT = Estimated Advance Tax of Corporate(ECTR).
I strongly believe application of this strategy will solve many problems, simultaneously taking care of equalizing development among the cities.
The author can also be reached at caravikishore@rediffmail.com
CAclubindia
