December 16, 2015 No.2
https://www.facebook.com/mehtarahulc/posts/10153179365321922
The problem of ghost salaries --- why progressive income tax is flawed and impossible, and only solution is FLAT income tax rate
.
The income tax rates I have proposed are
.
income below Rs 200,000 --- 30% compulsory medical savings , 0% income tax
.
income between Rs 200,000 and Rs 400,000 --- 20% compulsory medical savings , 10% income tax
.
income between Rs 400,000 and Rs 600,000 --- 10% compulsory medical savings , 20% income tax
.
income above Rs 600,000 --- 0% compulsory medical savings , 30% income tax
..
Income above Rs 10,00,000 --- 10% additional tax till all money deposited in compulsory medical allowance gets paid as income tax.
.
The compulsory medical savings can be withdrawan ONLY for medical expenses. And with restrictions, they can be withdrawan for marriage of children or education fees of children or buying home, but NOTHING else. This will reduce govt burden of providing health and education. The amount left after death will passed to heirs as taxable income in that year.
.
So in a way, we have a flat tax.
.
Now why have flat income tax and not progressive income tax , where tax rate increases with income?
.
eg whats wrong with following tax structure
.
income below Rs 200,0000 --- 0% income tax
.
income between Rs 200,000 and Rs 400,000 --- 10% income tax
.
income between Rs 400,000 and Rs 600,000 --- 20% income tax
.
income above Rs 600,000 --- 30% income tax
..
The problem is GHOST SALARIES.
.
Lets say a person's revenue is Rs 20,00,000 per year. And he has an employee whose annual salary is Rs 80,000 per year. Then Taxable income is Rs 19,20,000.
.
Now that person can pay a cheque of Rs 200,000 , and show it as salary, and collect Rs 120,000 cash. Now his taxable income us Rs 18,00,000 !! The employee wont mind, as his take home is still Rs 80,000 .
.
Removing cash from the society, and making all trasaction cheque based does NOT reduce the problem. Why? The employer can pay cheque of Rs 200,000 and ask the employee to buy grocery etc of Rs 120,000 from employee's chequing account, !!! IOW, if cash notes are replaced by cheque, then employer will collect goods or services from employee instead of cash
.
All in all, so called PROGRESSIVE tax creates problem of ghost salaries. In above example, when employer pays Rs 200,000 cheque to employee and collects back Rs 120,000 in cash notes on in goods, the real salary is Rs 80,000 and ghost salary is Rs 120,000 .
.
However, when social security tax or compulsory medical tax is addes, problem of ghost salaries reduces to near salary. Not zero, but near zero. Why? Please do all the math
.
.All in all, flat tax is viable, Regressive tax makes lower class rebel in many ways. And progressive tax only increases dishonesty.
.
Please see income tax rates in USA , and include BOTH, employee side social security tax and employer side social security tax. You will notice that highest federal income tax rate in USA is 40%, and for income as low as $10,000 per year, is 15% income tax + 7.5% employer side social security tax + 7.5% employee side social security tax i.e. total = about 30 % . IOW, USA has been following "almost" flat tax rate structure since ages
.
https://www.facebook.com/mehtarahulc/posts/10153179365321922
The problem of ghost salaries --- why progressive income tax is flawed and impossible, and only solution is FLAT income tax rate
.
The income tax rates I have proposed are
.
income below Rs 200,000 --- 30% compulsory medical savings , 0% income tax
.
income between Rs 200,000 and Rs 400,000 --- 20% compulsory medical savings , 10% income tax
.
income between Rs 400,000 and Rs 600,000 --- 10% compulsory medical savings , 20% income tax
.
income above Rs 600,000 --- 0% compulsory medical savings , 30% income tax
..
Income above Rs 10,00,000 --- 10% additional tax till all money deposited in compulsory medical allowance gets paid as income tax.
.
The compulsory medical savings can be withdrawan ONLY for medical expenses. And with restrictions, they can be withdrawan for marriage of children or education fees of children or buying home, but NOTHING else. This will reduce govt burden of providing health and education. The amount left after death will passed to heirs as taxable income in that year.
.
So in a way, we have a flat tax.
.
Now why have flat income tax and not progressive income tax , where tax rate increases with income?
.
eg whats wrong with following tax structure
.
income below Rs 200,0000 --- 0% income tax
.
income between Rs 200,000 and Rs 400,000 --- 10% income tax
.
income between Rs 400,000 and Rs 600,000 --- 20% income tax
.
income above Rs 600,000 --- 30% income tax
..
The problem is GHOST SALARIES.
.
Lets say a person's revenue is Rs 20,00,000 per year. And he has an employee whose annual salary is Rs 80,000 per year. Then Taxable income is Rs 19,20,000.
.
Now that person can pay a cheque of Rs 200,000 , and show it as salary, and collect Rs 120,000 cash. Now his taxable income us Rs 18,00,000 !! The employee wont mind, as his take home is still Rs 80,000 .
.
Removing cash from the society, and making all trasaction cheque based does NOT reduce the problem. Why? The employer can pay cheque of Rs 200,000 and ask the employee to buy grocery etc of Rs 120,000 from employee's chequing account, !!! IOW, if cash notes are replaced by cheque, then employer will collect goods or services from employee instead of cash
.
All in all, so called PROGRESSIVE tax creates problem of ghost salaries. In above example, when employer pays Rs 200,000 cheque to employee and collects back Rs 120,000 in cash notes on in goods, the real salary is Rs 80,000 and ghost salary is Rs 120,000 .
.
However, when social security tax or compulsory medical tax is addes, problem of ghost salaries reduces to near salary. Not zero, but near zero. Why? Please do all the math
.
.All in all, flat tax is viable, Regressive tax makes lower class rebel in many ways. And progressive tax only increases dishonesty.
.
Please see income tax rates in USA , and include BOTH, employee side social security tax and employer side social security tax. You will notice that highest federal income tax rate in USA is 40%, and for income as low as $10,000 per year, is 15% income tax + 7.5% employer side social security tax + 7.5% employee side social security tax i.e. total = about 30 % . IOW, USA has been following "almost" flat tax rate structure since ages
.
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