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Inflation, taxes & more ... - Views on News from Equitymaster
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  • Aug 22, 2008

    Inflation, taxes & more ...

    Inflation creeps higher...
    The Wholesale Price Index (WPI) based inflation rose to 12.63% for the week ended August 9, higher than 12.44% registered in the previous week. The hike can be attributed to rising prices of food items like fruits, vegetables and milk. Apparently, the government's fiscal and monetary measures have so far been inadequate in controlling the surging prices. Hence another round of monetary tightening seems likely.

  • Also read - High inflation in India, and in Zimbabwe

    Can fewer exemptions from tax help?
    As per the revenue secretary, the government has to reduce the various exemptions provided under the income tax law in order to garner higher tax collections.

    There are several reasons why the exemptions must go. First, the collection from indirect taxes-excise, sales tax and customs duty - needs to be reduced as it pushes prices upwards indiscriminately. That adds to inflation. Moreover, it is against India's international commitments. It may be noted that the share of direct taxes in the overall tax collection in India is 35% as opposed to the international norm of 55 to 60%. Second, the purpose of nearly all exemptions has already been served in most industries. Third, exemptions have rendered tax laws too complicated. And finally, exemptions create a gap between the nominal tax rate (currently 33.9% for Indian corporates) and the effective tax rate (around 20.6%). The government would instead like to have a lower nominal tax rate with fewer exemptions that would send a strong signal of India adopting a more business friendly tax regime.

    However, political pressure from industry lobbies and the bureaucrats' incentive in maintaining a complicated regime mean that it will take some effort to banish the myriad exemptions from the tax book.

    Are jobs for keeps anymore?
    On the basis of a survey of nearly 30,000 people, human resource consultancy major Manpower says that nearly 80% of the work force is willing to relocate to a new place for a job. The overriding consideration for most of these mobile job seekers is higher pay. Interestingly, the span of relocation is not limited to national boundaries. The shift in demographics, scarcity of talent due to the highly skilled nature of new-age jobs, and an increasing willingness to experience new cultures has given rise to a truly global labour force.

    Ironically, we can witness this trend in the increasing number of homeward bound Indian expatriates as well, who are glad to return to India after an extended stay in the West. To most of these global citizens, location does not matter, as long as the new job furthers professional growth.

  • Also read - Talk about manpower shortage



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