Saturday, 15 July 2017

Beggars in Nigeria will start paying tax !



So says the Finance Minister of Nigeria. Beggars will have to pay taxes. Apparently some beggars are earning millions in Nigeria. Perhaps its fair enough that Mrs Adeosun , the Finance Minster said “proceeds from begging are taxable. You are supposed to pay taxes even if your means of income is begging”.

Nigeria is a notoriously corrupt country and tax evasion is blatant and has been elevated to a fine art.  Hence the startling "fact" that beggars are earning millions. Nigeria should, by all rights, should be a very prosperous country. It has oil wealth and is a net oil exporter. It has a  young , bright and growing population.  It has a decent education system and some of the ablest people in the African continent. It is a large economy - second largest after South Africa.  And yet, it is a huge underperformer economically. 

Periodically the Nigerian government tries to tackle corruption and the also shore up the country's finances. Bolstering tax revenue by cracking down on rampant tax evasion keeps getting tried periodically, but with not much success. The latest is the Voluntary Assets and Income Declaration Scheme ( with the unfortunate acronym - VAIDS) . Good luck for the latest attempt.

India suffers from similar evasion, with its own home grown quirks. Agricultural income is not taxed , but much of what is claimed as agricultural income has nothing to do with farming. Similarly the tax entity called Hindu Undivided Family is nothing but an institutionalised way to manage taxes.  The irony that "Undivided" and "Family" cannot be put adjacent to each other when it comes to money matters is completely lost on Ramamritham !

The United States being the leader of the world in all matters offers a rich variety of such dodges in the law. Walt Disney in Florida and other big landowners collectively dodged $950 m in  taxes by renting a few cows to graze on their large land holdings and thereby qualified as agricultural land inviting lower taxes. And since two of my usual commenters are from the great state of Oregon, they may wish to declare that two of their limbs are useless and thereby earn a tax credit of $50 !

Back to begging. Actually no country exempts the proceeds of begging from taxation. If your earnings from begging exceed the minimum threshold, you have to pay tax on it anywhere in the world. Mrs Adeosun was only stating an universal truth ! Beggars of the world, beware !!

Thursday, 13 July 2017

Right problem ; Wrong solution

The extreme left , as this blogger is wont to repeat ad nauseam, is as bad as the extreme right. The champions of the hard left - Bernie Sanders in the US and  Jeremy Corbyn in the UK have one policy in common that is a good example of this. Free college for everybody. 

They also have another thing in common which is often the case with the left's policies. Right problem. Wrong solution.

First the right problem. Its a complete disgrace that in a developed country, a young person starts working life under a mountain of debt.  Outstanding student debt is now £100bn  in the UK,  and a ridiculous $1.3 trillion in the US. And just to give you a perspective on the latter statistic, its $ 600 m higher than the total credit card debt in the US. You start life with a mountain of debt, and not a ready prospect of a good job. Great. If I was to be born again and had a choice of where to be born, I wouldn't choose either the US or the UK on that statistic alone.

The left deserves great credit for highlighting this problem. Successive governments of all stripes and colours (pun intended) deserve censure for ignoring the problem and allowing it to build to these  levels. A society, and a nation, that spurns its young does not deserve  to be called "civilised".

But, as is often the case, the left's solution is dead wrong. Their prescription is for college to be made free and the costs to be picked up by the government.  Fantastic. Will they never learn that tax tax tax and spend spend spend does not work - for free advice apply to Hugo Chavez, Fidel Castro, et al. 

This blogger suggests three solutions instead.

First cut costs. Why is college education so expensive ? In the US, a ridiculous amount of cost is spent on college sports, fancy living quarters and everything that has nothing to do with education. My good friend Sriram has blogged extensively and is far more knowledgeable on this subject.  In the UK, the average Vice Chancellor earns £300,000.  And gets payoffs for leaving the job, which would make any corporate fat cat proud.  Wield an axe on any cost that does not strictly have to do with education. Get the professional cost cutters from industry and let them loose on the education sector and within 3 years they'll cut costs down.

Secondly, what about parental responsibility. I am not at all clear why parents in these countries do not pick up a large portion of these costs. In Asia, education costs are largely picked up by parents. That's their legacy and gift to their offspring. If you are not prepared to start your child off well in life, you don't deserve to have a child. Period. And anyway what sort of an argument is it that you will not pay for your offspring's education, but somebody else (the tax payer) should. And don't tell me the parents cannot afford it - they have 15 odd years from the child's birth to plan savings. Save $ 5 every day and you won't have to worry about student debt.

Thirdly make college education truly global. Allow students from anywhere in the world to study anywhere else - allow free movement of students. There are superb universities in China and India for example, where you can get high quality education at a fraction of the cost in the US or the UK. Just like industry has truly globalised with activity automatically moving to the lowest cost location, so be it with education. Yes, I know this is an utopian dream and will never happen, but at least I can articulate it in my own blog (and no doubt face a volley of criticism in the comments !). Just to make it very clear, I am only advocating free movement for education; not permanent immigration.

The hard left may not ascend in the US, despite how many ever have felt the Bern. But there is a real chance that Jeremy Corbyn might become the Prime Minister of the UK. In that case their national anthem of "God save the queen" could perhaps be amended to God save the UK !

Monday, 10 July 2017

The pox on Ramamritham (for the nth time)



Regular readers of this blog know that this blogger rather likes railing against Ramamritham. Ever so often, there has to be a post yelling at this cursed individual.

This time it is on the Department of telecom (DoT) which is a pesky nuisance that purports to regulate every aspect of  our phones and how we talk to others. Along with the child it spawned TRAI - The Telecom Regulatory Authority of India, they have been busy over the last decade framing rules and procedures for everything on earth. Did you know that every phone company has to publish its prices and tariffs in a prescribed format  ? If you have seen that format, you'll know that you need a PhD in mathematics to understand it.

One result is that you have to go armed with lots of paper and proof for something as simple as getting a SIM Card. In control obsessed China, I just went to a corner shop and bought a SIM. It took me 2 minutes to do so. In India, you submit an ID proof and an address proof (of course Raramritham has written rules on which documents will be accepted for either of those proofs), then wait a while as the SIM is "activated", then you call up a number and revalidate the proofs you have submitted ........

The latest antics of Ramamritham that has got my goat is that he has ruled that all phones henceforth sold in India must have GPS. His logic ? The safety and security of women is "of utmost importance"  says this blessed specimen. If she is in danger, we can trace her whereabouts through the GPS signal !!

Really ?? Is it the business of Ramamritham to be legislating such nonsense ?  If he was really concerned about women's safety, he would be improving police coverage,  improving response time to complaints, ensuring more policewomen in the force, ensuring that cases are brought to speedy trial,  having a helpline where somebody actually answers the phone, etc etc. No. That's all too difficult to do. Instead he can indulge in his favourite activity - write a rule.

Never mind that if a woman wanted GPS on her phone to reassure her of security, she can simply go and get such a phone. No. It has to be legislated.

India has an installed base of 400 million phones that are euphemistically called "feature phones". Translation - they do not have feature such as GPS ! The cost of a phone is likely to increase by Rs 400 if GPS has to be featured in all phones.  That of course, does not bother Ramamritham.

When the industry protested, in true style Ramamritham replies - " It is reiterated that all mobile handset makers should adhere , blah blah, to implementation of GPS facility in all mobile phones sold in India from January 1 , 2018. The representation (sic) in this regard will not be entertained in future " . Beautiful.

Can all scientists stop their work on space exploration, finding a cure for cancer, sequencing the DNA, etc etc and instead concentrate single mindedly on the eradication of Ramamritham please !

PS : Ramamritham is a fictional name invented by the blogger to typify the useless, pedantic, petty and painful bureaucrat !

Saturday, 8 July 2017

Turn the world vegetarian



Humans love eating meat. Vegetarians and vegans (this blogger is a vegetarian) don't stand a chance. In quite a few countries in the world, you simply have to starve if you are a vegetarian.  In many others, your only ordering choice in a restaurant is likely to be an apology of a salad, that could more appropriately be fed to a cow !

Any chance that you can turn the human race into vegetarians ? Well, at least one company thinks so. The aptly named Impossible Foods based in California (where else)  would like to try. An interesting Q&A with the founder that I read in the Guardian, prompted this post.

The logic for turning the human race vegan is impeccable. The largest environmental impact that humans have created is from rearing animals for food - cows being the primary culprit. The resources utilised - water, land, etc - per pound of meat is also the largest. The absolutely atrocious conditions in which we rear and kill farm animals has to be a permanent blot on the human species (pig farmers in Iowa - are you listening ?) And if the population of farm animals decreases, there is a better chance of wildlife prospering,  as one of the chief causes of habitat loss is grazing. 

Of course, this is not going to happen. Go back to the first sentence of this post. 

I however have this feeling, totally unsubstantiated by data, that this might be a long term trend. Technology in food production is on the cusp of a revolution. After all humans don't eat meat because they like to kill animals. They eat it because they love the taste. If, and when, plant based foods are engineered to taste like meat, there is every chance that people will start to switch. Especially if it is cheaper.  And then, slowly, the ethical side of it will start to play a part. If you can satisfy your nutrition and the craving for taste without killing, why wouldn't you do it. After all, if many of the meat eaters actually saw how their meat was being produced, a good proportion will turn vegetarians immediately !

But this is not going to happen in a hurry. Impossible Foods is just a fad and, this being California, fads are always welcome. But good luck to them. I might even come out of retirement and open the India branch - at least it will get me into the good books of the awful gau rakshaks !

But one day, in the distant future, maybe 100 generations later, our descendants will look upon with horror at "prehistoric man" for killing and eating animals. And maybe somebody will read my post from the archeological archives and pronounce me as a prescient wise man !

By the way, the photo is that of a veggie burger .

Saturday, 13 May 2017

Companies don't make investment decisions based on tax rates

If you cut tax rates, will companies invest more ? This is almost a religious belief in a certain party in a certain country in the world. Is it justified  ?

The answer, in my opinion, is mostly No.

Companies make investment decisions based on markets, sales projections, competitive advantage, margin potential, scalability and the like.  These are extremely complex business variables and occupy 90% of the time and effort that goes into a business decision.

The tax line is one of the last lines in the cash flows of an investment proposal. It is certainly important, but hardly a determiner of whether the investment goes ahead or not.

There are a few instances when the tax rate indeed becomes a determining variable in the decision. For example, in India, there have been many instances where the government, in an effort to stimulate an underdeveloped part of the country has allowed zero income tax rates for operations located in those areas. In such a case, the tax rate becomes a determiner of the location of the investment; not the investment per se. Nobody puts up a factory just because the tax rate is zero. They put up a factory because the business opportunity is compelling. Having decided to invest, they may choose to locate it in a low tax zone.

The other instance when a tax rate becomes a determiner of investment is if the tax rate is ridiculously high.  For example if the marginal tax rate is 90%, nobody will invest even if the business opportunity is compelling (M. Melenchon's supporters, are you listening ?). But if you cut the tax rate from 35% to 15% , it's a nice bonus, but it will not add one dollar of investment which otherwise would not have been made.

Further, companies make investments based on a 7 or 9 year time horizon. If one President cuts tax rates this year, what stops the next President from increasing it 3 years from now. So its almost inconceivable that a company which would otherwise have not made the investment, will rush to now make it because of the tax cut.

The argument that a major tax cut on companies, will spur investment growth is mostly flawed. It will however have the following consequences

It will improve corporate profits (for after all tax is a cost) and therefore both the investible surplus and/or dividends in the hands of shareholders. It will increase the wealth in the hands of those who are shareholders. They may spend it which will have a beneficial impact on the economy.

It will correspondingly increase the deficit that the government runs, and therefore the nation's borrowings. That will push the cost of borrowing and inflation.

But will it also increase tax revenues and therefore make the measure revenue neutral. Mostly No. But there is one big exception in the US, which will be the subject matter of the next post.

Monday, 8 May 2017

Fear of Flying

In the normal world of business, companies are supposed to treat their customers with kids gloves. And customers are supposed to be very partial to the brands that they buy. It's all supposed to be a love love relationship .

Not so in the airline industry. Customers absolutely loath airlines. The act of flying is considered by most flyers, especially the regular ones, as next only to root canal surgery.  And airlines (mostly) hate their customers. They are little more than cattle, in their eyes. And everybody associated with the act of flying hates everybody else. The security folk are hated by all. Most airports in the world are glorified cattle pens. And yet the industry is booming. The rash of incidents being reported from the US will simply pass over. The hate hate relationship is alive and kicking and will simply continue thriving.

Why is this so ?  Two reasons primarily, in my view

- One, there is no option but to fly.
- Two,  customers care for nothing else but price. All the talk of wanting service is humbug.

We all moan about how seats have become cramped, food has disappeared altogether, everything costs extra , security lines are impossible, etc etc. And yet , if there was a flight that costed $1, but required you to stand on one leg throughout the flight, we'll cheerfully take it. And therein lies the problem.

Take India and the case of New Delhi . I had the misfortune of flying from there a couple of days ago and hence this post.

There are two domestic terminals in Delhi. One is swank, large, with lots of space, small security lines and can compare favourably with the best in the world. The three airlines that use this as the base are very good, serve complimentary food, are generally on time and don't charge ridiculous extras. The other terminal is a disgrace - crowded worse than a train station, no place to even sit, and  a close approximation of a pig pen. The airlines that are based here charge extra for everything, offer no complimentary food and bus you to the plane worse than a Mumbai local. But this lot are generally cheaper than the other lot by say Rs 500; maybe Rs 1000. Absolutely no prizes for guessing which one the passengers prefer.

We really should stop complaining about how airlines treat us. Until we are prepared to open our wallets a little more.

Monday, 1 May 2017

Corporate Fluff

Lucy Kellaway of the Financial Times is one of my favourite columnists. One of her specialities is to roast companies that spew out meaningless bullshit in their communications and press releases. She even hands out annual Golden Flannel Awards for the worst corporate gobbledygook.

She's at her best today canning Mondelez (The Oreos to Cadbury company). The company's marketing head quit and this is what they had to say about finding a successor

" Our search for a successor will focus on finding a digital-first, disruptive and innovative leader who can build on Dana’s legacy and mobilise breakthrough marketing in a rapidly changing global consumer landscape"

Every word is a cliché and the sentence says absolutely nothing other than mouth inanities. Does it make you any wiser who they are going to hire ?

She has , over the years, mocked at meaningless drivel, quoting such outstanding examples as these

From Burberry - "In the wholesale channel, Burberry exited doors not aligned with brand status and invested in presentation through both enhanced assortments and dedicated, customised real estate in key doors"

Or this from E Bay - "We are passionate about harnessing our platform to empower millions of people by levelling the playing field for them"

Have you stopped to think about the nonsense that is shovelled each day. Infosys is doing an "orderly ramp down of about 3000 people", ie sacking them.  Citibank was "optimising the customer footprint across geographies " ie, er firing people. What about grandiose words for mundane things .  Speedo's swimming cap is a "hair management solution", another's aluminium doors are "entrance solutions" and Siemen's healthcare business is "Healthineers".

We ourselves mouth such fluff often - We want to touch base . We are moving forward. We are solutioning for a client. We are mitigating risks by risk management. We are at a "workshop" where somebody is droning through 200 slides and the rest are supposedly paying attention. We are tele commuting.

How about some good old plain English for a change. Something the Queen would approve of. Declare the next week as a fluff free week. Speak in simple English. If you cannot, try Gurmukhi ! A language where fundamentally jargon and flowery language is impossible.

A passing note to American readers. I know the English language is strange to you, but you may want to try and learn it !!

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