August 7, 2011

[Business Communication Assignment]

Tax. Dual pricing is impractical

Finally, finally, theres some guts on show in North Block on the issue of tackling diesel subsidy. Theres absolutely no reason nor there ever was why diesel cars and luxury sports utility vehicles used for private transport should get cheap fuel. The government has no business subsidizing the rich (it takes more money to buy diesel vehicles) and destroying its own balance sheet. By finance minister Pranab Mukherjees own admission, cars use 15% of the diesel consumed in India today. With sales of diesel cars surging 50% in the last one year, there is need for quick action. But one of the proposals talked about dual pricing of diesel is impossible to implement and lends itself to monumental corruption. Today, petrol costs 45-50% more than diesel and any attempt to bridge the gap by making diesel sold to cars costlier will spawn a massive black market and scuttle the process. There is just too much lucre for the pump owner a lot of which are privately owned to pocket the difference. It doesnt take a lot to show fuel sold to a car as fuel sold to a truck. On their part, truck operators will be tempted, too, to tank up and sell the diesel in the black market. The best way to go about it would be to levy an annual tax on diesel vehicles on an ascending basis - levy the least on sub-4 meter small diesel cars and crank it up aggressively for costlier vehicles, even going prohibitive on SUVs and cars that cost over Rs15 lakh. To make economic sense, any levy must be large enough to compensate the losses the government will suffer during the lifecycle of a vehicle, which could be assumed as 10 years. The arithmetic is not difficult. Taking an annual run of 8,000 km per vehicle and an average mileage of 10 kmpl, the government subsidizes 800 litres of diesel per car every year. At a subsidy of Rs 6-something per litre, thats about Rs5,000 per year. Or, if it wants to make things administratively easier, slap a one-time, 10-year tax with proportionate adjustments based on the price of the car. For the government, that would be fantastic securitization - or monetization of future receivables. And any God sent decline in crude will only burnish the fiscal numbers further. The money could repair the wretched financials of oil marketers and even reduce the fiscal deficit. But any attempt to tax commercial vehicles such as tempos and trucks - even public transport would be stoking the inflationary fire. So dont. It also makes sense to sell diesel at higher prices to mobile phone companies, which consumed 3 billion litres worth Rs12,600 crore last fiscal to power their 4 lakh telecom towers and base stations across the country, according to the ministry of renewable energy.

August 7, 2011

[Business Communication Assignment]

The subsidy on this cost the government Rs 2,600 crore last year - meaning, telcos profited by that amount. With diesel usage by telcos rising 20% a year, its important they are made to cough up the difference too.

Sources :
http://www.dnaindia.com/analysis/column_raj-nambisan-tax-dual-pricing-isimpractical_1572761
Management Tactic Structure SmartArt Synthesis Premise Parameter Judgment Framework 5W-1H Bypass Connector Analysis Inference

August 7, 2011

[Business Communication Assignment]

Theres absolutely no reason nor there ever was why diesel cars and luxury sports utility vehicles used for private transport should get cheap fuel. Opinion The government has no business subsidizing the rich (it takes more money to buy diesel vehicles) and destroying its own balance sheet. Argument By finance minister Pranab Mukherjees own admission, cars use 15% of the diesel consumed in India today. With sales of diesel cars surging 50% in the last one year, there is need for quick action. But one of the proposals talked about dual pricing of diesel is impossible to implement and lends itself to monumental corruption. Factor Today, petrol costs 45-50% more than diesel and any attempt to bridge the gap by making diesel sold to cars costlier will spawn a massive black market and scuttle the process. Logic There is just too much lucre for the pump owner a lot of which are privately owned to pocket the difference. It doesnt take a lot to show fuel sold to a car as fuel sold to a truck. On their part, truck operators will be tempted, too, to tank up and sell the diesel in the black market. The best way to go about it would be to levy an annual tax on diesel vehicles on an ascending basis - levy the least on sub-4 meter small diesel cars and crank it up aggressively for costlier vehicles, even going prohibitive on SUVs and cars that cost over Rs15 lakh. Assessment To make economic sense, any levy must be large enough to compensate the losses the government will suffer during the lifecycle of a vehicle, which could be assumed as 10 years. The arithmetic is not difficult. Taking an annual run of 8,000 km per vehicle and an average mileage of 10 kmpl, the government subsidizes 800 litres of diesel per car every year. At a subsidy of Rs 6-something per litre, thats about Rs5,000 per year. Or, if it wants to make things administratively easier, slap a one-time, 10-year tax with proportionate adjustments based on the price of the car. Hypothesis The money could repair the wretched financials of oil marketers and even reduce the fiscal deficit. But any attempt to tax commercial vehicles such as tempos and trucks - even public transport would be stoking the inflationary fire. So dont. Reasoning It also makes sense to sell diesel at higher prices to mobile phone companies, which consumed 3 billion litres worth Rs12,600 crore last fiscal to power their 4 lakh telecom towers and base stations across the country, according to the ministry of renewable energy. Fact The subsidy on this cost the government Rs 2,600 crore last year - meaning, telcos profited by that amount.
Deduction

August 7, 2011

[Business Communication Assignment]

With diesel usage by telcos rising 20% a year, its important they are made to cough up the difference too.
Strategy

Judgment Inference Bypass Tactic Parameter