eliminate caps on corporate pay

The recommendation to eliminate the 11%-of-profit salary cap for company directors that is currently enforced is sensible and long overdue. The JJ Irani Committee is right in pointing out that corporate compensation is best left to market forces. In the age of global deals and mega takeovers, directors' salaries cannot be held hostage to arbitrarily dictated caps by the government. In competitive times, the corporate sector needs flexibility in determining exactly how the finances are to be used in engaging resources to optimise operations and achieve the desired results, and this includes human resources. What value who brings to the business, and what it is worth in rupees, dollars or beach holidays, is a matter of internal knowledge. It may be a matter of disclosure and discussion between a company and its shareholders, but the government certainly has no locus standi here at all. The only external regulator should be the market, and the government's job is to ensure that there is sufficient competition. So, if a company mis-allots its funds, it will find itself edged out of business by firms that do a better job of it.

As for the charge that directors are 'overpaid', there is little evidence to show that any systemic imbalance has arisen out of high salaries in corporate India. In fact, there is reason to believe that companies are paying people only as much as needed to access their skills. And these vary vastly, as evident in dozens of other fields of human endeavour that get more media exposure. It is just that this variation is something that external observers are not necessarily equipped to appreciate in the corporate arena. Higher competition tends to activate the variation, resulting in divergences in pay. In such a scenario, any arbitrary cap can create an artificial imbalance that will eventually curtail corporate India's competitive advantage. This is not to argue that there is no such thing as an 'outrageous salary'; as some instances from the US have recently shown, scandals do occur, but it is the self-corrective mechanism of the market—shareholders protesting, for example—that adequately takes care of them. Corporate governance exists for a reason, and that reason is to make sure that the company serves the interests of its shareholders. Salary caps do nothing of the sort.

buying costly cell phones could atract the tax man

Buying that swanky new cell phone just got a little bit tricky. The income Tax department is watching you closely If you are going to spend as little as Rs. 25,000 they may come after you.
In a startling development last week, the department went across Mumbai’s retails stores and physical checked their ledgers. This was done to find out who the “big spenders” were and how they managed to get the money to splurge. The information was matched with the spender’s tax returns and notices were sent to over 400 people.
This is a retrogressive return to the days of the tax raid raj. The move has the potential of having a dampening effect on the economy. India’s economic growth is driven by a healthy 29 percent saving rate that drives domestic consumption, unlike China, which depends on consumption from aboard. This is a major advantage for the country and the latest move could hurt domestic consumption.
Even tax collection could suffer from this move. Taxes such as VAT contribute a far larger share in the government’s revenue collection when compared to Income tax.
. If an atmosphere of fear is created, it is sure to inhibit expenditure and in turn revenue from goods sold. As a result the income tax department may gain but the revenue from other departments such as excise and VAT will show a slowdown. The imbalance in revenue collection negates the logic of going after individuals. It will ultimately hurt the government more than consumer.
While it is no one argument that tax evasion goes unchecked, these intrusive methods are not the right manner to go about it. This constitutes a regime of fear where a consumer will have to think twice before making even innocuous purchases.
The move is likely to encourage the use of cash instead of credit cards. The consumer will easily by pass the tax effort by spending cash and this will only drive up the share of the parallel economy. The income tax department has other pressing problems. It has billions of rupees locked in t\legal disputes and the income tax return process too is in need of further simplification. By going after so called big spenders it is merely creating a problem rather than having a solution. The department will do well to rethink its position on this issue since consequences are a slowdown of the economy which India can ill afford.