Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Commentary

Is Haath De, Us Haath Le

Remember when the government decided to up employee salaries by some 20%, and even back date it? Well, it turns out they’re going to get this year’s amount back as tax.

For lakhs of central government employees looking forward to receiving 40% of the accumulated arrears on their increased salary next month, in time for some festive spending on Diwali and Eid, here’s a dampener. The government has decided to levy tax on the entire amount of arrears—60 % of which will be paid next year—in the current fiscal itself.

For most employees, the decision would virtually wipe out almost the entire amount of 40% arrears to be paid to them this year. Senior bureaucrats will suffer the most as their tax would be topped with a surcharge of 10%, applicable on an income of Rs 10 lakh and above.

This is a political coup. Elections are next year. This government has the fear – a very sound one – of not being voted back into power. So they announce this wage increase – but then take it all back in year 1, so they don’t really have to pay out anything. The next government has to deal with what happens in year 2, no?

Think about bank loan waivers. Implemented over multiple years, when this government will bear it only for one year. (Perhaps this is accounted someplace)

Still, what it’s going to do is: Nothing. Whatever people get, they’ll pay out as tax and wait till next year. Perhaps in an economic sense that is better, since next year may be a horrendous time for liquidity and people will need the money. But I hope they’re not letting the government decide that.

  • Anonymous says:

    >”since next year would be a horrendous time…” — could you please elaborate a bit more. I wanted to understand, in particular, how it’s going to be any more horrible than what it’s been this year. I am guessing you’d say the credit crunch would find its end and that’s going to cause pain — is that right?

  • Deepak Shenoy says:

    >You’re right – the end of the credit crunch and the ramifications of a tough interest rate situation will probably come only next year.

  • Siddharth says:

    >Timeline, september/november 2009 for gold to make new highs. Not a bull but new highs.>> courtesy EW expert kog from kitco.

    may be untill the US elections conclude global scenario will not be much clear. Afterall politicians whether be Indian or American are of the same genes!! Mamata says no industry in WB and Obama says he will tax MORE to co's who bring in overseas employees in states.

    Deepak,
    I would appreciate if you may brief to readers like me how to prepare financially to get through the rough times, whether this yr next yr or in future!

    One more thing if your statement comes true then 40% drop in realty wouldnt be impossible by next year or may be more! Scary enough.
    Unless the mass's forget what just happenend in last few months and then start all over again in the meantime just to face the next year much worse repeat of the worst of this year, then we might see small boom and then big doom in rality.

    Now I have become one of the fools as previously mentioned, by predicting. 😉
    cheers

  • amit says:

    >Deepak i had a querry regarding your SOS,as you had mentioned that you are virtually playing it considering you are not leveraged,also you said of not having particular targets,thus that warrants there are no stop losses too!!!…..because if had learnt from my numerous experiences that having a stop loss is must,now suppose that if ICICI (candidate of SOS),runs away all the way to 800 wont it be prudent to cut losses,because whether virtual or real at the end of it all it is profit/loss actually booked that matters…..or is it that you think that ICICI commands a lower PE and the market will pull it to that level,last two sessions have been overtly bullish for this stock,huge buying could be seen…..what do u think deepak..

  • Deepak Shenoy says:

    >Amit: Not that there are no stop losses, but there are no predefined stops. I will get out should the reasons for being short change. I think the fair value for ICICI is lower at this point, and am considering doubling up in case the rally takes it higher.