14 July 2017
On 1st July, India changed the way it imposes indirect taxes. As a result, there has been massive chaos around the country. Many businesses are simply closed for they don’t know what taxes apply to them or how to do the paperwork. As many as half the transportation trucks are not operating. The media has decided not to cover these events.
The new indirect tax is a value-added tax system, but as can be expected from the Indian government, the new tax system is chaotic, bureaucratic, extremely complicated, and full of loopholes. Failure to comply will, however, lead to imprisonment.
There are about seven kinds of rates. Not only the rates differ based on the kinds of products, but also on the prices of the products. For example, there is a 5% sales tax on footwear if it is priced less than INR 500, but 18% if it is priced higher. So, if the total price is around INR 1,000, footwear stores are selling a pair of footwear as two separate pieces, pricing each piece lower than INR 500. This way they can charge only 5% tax, instead of 18%.
One must ask if the Indian government gave any thought to what would happen if for some reason the price of something like this went up from INR 499 to INR 501. A mere 0.4% change in price would result in the customer paying about 13% more. Imagine the shock a transition of price like this would cause to the demand and supply situation. But, really, Indian bureaucrats never contemplate on such issues. Every regulation they make is to maximize their collection of bribes.
Many people have asked me about what is happening with gold and silver prices in India. I respond, “Nothing.”
Let me explain…
The total indirect taxes on gold and silver are now about 14%, instead of 13% earlier. The customer also needs to pay for the cost of import and insurance, the mark-up for the importer, and the mark-up for the retailer. Assuming that these costs add about 6% to the landed price, the final retail price of gold and silver should be around 120% of the international price. Currently, gold sells for 110% and silver for 112% of the international price.
Imagine what would happen if someone wanted to legally import and sell gold in India? If he ran a very efficient operation, he would lose about 5%-10% on the revenue.
Does all the above sound Orwellian?
I explain the above situation in more details here:
Inside the country, Indians have increased their gold consumption. Those who can are moving their gold and wealth abroad. They are increasing their purchases of properties outside the country. A very large number of Directors of publicly-listed Indian companies are officially resident in Singapore, HK or Dubai. 30% of people in UAE are from India. Of course, not much of this shows up in statistics.
Just about every Indian I know would emigrate today if he could. Most want to live under the institutions set up by Europeans. Hypocritically, those who cannot emigrate, and particularly those who do manage to vociferously claim that European colonization of the third-world was somehow bad thing. It wasn’t. I will be speaking on this issue at the next Capitalism & Morality seminar (ticket price to increase on 16th July).
Without the British running India, India is rapidly on its way to utter chaos, disintegration, and what will likely end up becoming a major humanitarian crisis.
Associate: Rajni Bala
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