Expenditure Tax

People of India are more used to Income Tax process and major population is used to escape from income tax payments by showing their high expenses. Most of the big companies, show their high expenses and the remaining income is considered for the Income tax payments. Amount spend as an expense is not touched by the income tax department on the business class people. On the other hand, the working class people do not have any escape in paying the income tax. The tax is collected as TDS when the salary is processed, they pay the tax first and spend the remaining.

Now, before the budget 2022, the debate is on, will the expenditure tax be imposed completely eliminating the income tax ?. If that is so, what will happen to the income tax department ?. What is the benefit of bringing expenditure tax ?. Who will be benefited through this Expenditure tax ?. Will people spend more after this ?. Will the savings of people increase ?.

• If this Expenditure Tax process is brought into action, no one need to pay anymore income tax - Many will be feeling good right ?. Yes, most of the working class people (salaried people earning more than exceptional tax slabs) will feel happy. This is because they don't need to pay any TDS in advance and they will pay only on what they spend

• Most of the big companies will try to find a way to reduce their expenses if this expenditure tax is brought into action. This will be a complete game reversal for them. All these days they were playing the game of showing high expenses

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  Government may also project that people will try to reduce their expenses and start high saving. Do you think any government will think of their people saving more ?. No, government wants people to spend less to keep the money rotation in place. This will help the economy to grow higher. So, if the government is telling due to this expenditure tax the people saving will be higher, don't believe them. They might have other big plans

• The income tax collection these days are very low as many are not showing their income properly, specially the business class people. But the expenses cannot be hidden. If a person wants to buy a TV, Motorcycle, Fridge, Car, Washing Machine, Grocery, Shoes, Clothes, Toothbrush, Petrol etc. etc... they will need to pay this expenditure tax without escaping. I don't think any person can escape from spending in this world. This will definitely increase the tax collection compared to the income tax

• As per our Prime Minister Narendra Modi on February 2020, only 1.46 Crore individuals are liable to pay income tax, which is less than 1% of the population. By imposing this Expenditure Tax, will this number not be increased ?

• There are several countries such as UAE, Qatar, Oman, Kuwait, Cayman Islands, Bahrain, Bermuda, Saudi Arabia and Brunei where there are no income tax but people pay towards the social security, which is used for the government's budget. These countries are not poor countries by eliminating income tax. May be India can join this. Definitely not my personal wish, because India has very high population that these countries cannot be compared with

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  Let's think in a different angle. Will the people of India avoid spending or reduce spending because of this Expenditure tax ? I don't believe this. If the income tax is eliminated, people will have more cash compared to earlier case and they will end up in spending more (except few future millionaires who plan their budget properly). This will increase the tax collection to the government comparatively

• Price of petrol will increase due to this expenditure tax and definitely that will impact on all the raw materials. This will behave like a chain and the inflation will grow higher. Pair of shoes or slipper which costs around Rs. 500 in 2010 now costs more than Rs. 2000. This is almost the increase in price by 4 times in 10 years. Look at the inflation. We are already living in the highly inflated country. This expenditure tax will again make us to pay more on our spending

How can i be benefited on this expenditure tax ?

By imposing this expenditure tax, we know we need to pay tax on all our expenses. Hence we need to avoid spending more or avoid spending unnecessarily. If we are not controlling this earlier, we should start doing it now. It is wise to invest slowly and steadily with patience. Then we need to increase ways of higher income. Whatever we will earn through investing will not attract any tax. This is a good move for investors. This will definitely help to beat the inflation. Investing in a quality stock will help to save tax as well if this expenditure tax is imposed.

The only mantra is, Earn, Spend Less, Save and Invest.

Will the government be benefited on this expenditure tax, definitely yes. How can the common man be happy with this new way of taxes ?. What are the benefits ?. Working class people might think this might be a big relief for them, but they should think. Definitely paying tax on expense will be higher than paying tax on income. This is my personal opinion. Let us wait for the budget and see how this goes.

Have a Great Day

B G Nareshkumar