Negative Taxation

ImageThe CII is having a meet on negative taxation.

I am invited simply because I am on their mailing list. I was perplexed with what was negative taxation, particularly since the suggested audience bank had people in the healthcare industry.

NIT or the negative income tax is a proposal to establish a basic level of income for everyone. Which no one can fall below any reason. it is different from other minimum income proposals as it limits the payouts to people near or below the poverty line.

The principle is very simple, people below asset level of income receive a tax refund subsidy from the government which supplements their income to particular level.

DEFINITION as given by Investopedia  Negative Income tax or NIT is a guaranteed minimum income plan advocate by economist Milton Friedman in 1963 where the federal income subsidies are provided to persons or families whose income falls below a certain level.  The NIT would allow claimants to receive income through the simple filing of tax returns rather than through the claiming of welfare benefits, ideally eliminating the need for a complex welfare bureaucracy.


The entire proposal sounds like a something for nothing. Here are some of the noteworthy advantages claimed.


  • Ending poverty– In a self-interest driven market, the social cost is not accounted for. Eg. An air travel industry does not take responsibility for the air pollution it causes.  The imposition of direct and indirect taxes is one way of ensuring that this market failure is corrected and companies accept responsibility for the externalities that they cause.
  • Replacing bureaucracy Business pays for the externalities so other people and government don’t have to. For example VAT on alcohol and excise taxes are given to the government so that it can be reallocated into beneficial services like hospitals etc.  Interesting Goa has the proceeds going to the public library fund.
  • Reduction of excessive consumption. Since the product is already of demerit, higher taxation, would mean higher pricing leading to less consumption.(people do live in the clouds.)
  • Empowering employees, by allowing them flexibility  to choose better employment without economic compromises.
  • Stimulating spending: additional funds in low-income families and individuals tend to spend locally the overall economy will be stimulated in a sustainable manner.
  • Encouraging democracy if economic needs are de-linked from basic survival people interested in civics and social issues have the time to pursue education, political activism and culture.


  • A elaborate reporting and supervision system is required to avoid fraud. The probability of fraud being higher as the reward for fraud could monetarily be greater than the tax liability. The screening of this requires greater policing resulting in increased bureaucratic costs.
  • There have been criticisms that it discourages some low-income individuals from working.  The logic being if one can receive say 100/Rs. From the government for not working against 200/Rs. Of dozens of working hours than many people would choose not work even it meant less income and an inability to meet basic living expenses.
  • The beaucracy cannot be done away with either, as taxpayers who fund the subsides would demand accountability from taxpayers who receive subsidies.

at the end of the day with all its halo I wonder what the cost and effect of NIT would be? Is our micro-economy really benefitting?


Background : The resounding growth of Service Tax as one of the key indirect taxes had led to significant challenges for service providers and manufacturers. The Negative List Regime has introduced several new provisions and the service tax legislation has undergone a complete change. Several changes have been made in the Act, Rules and several new notifications and circulars have been issued in the past one month or so. It is necessary for trade and industry to be aware of the changes and take steps to ensure that they are compliant with the new provisions. In this context, CII Goa has organised a full day programme covering the recent changes introduced in the context of the Negative List.

·       Negative List : Concept and Background
·       Definition of service and what it means now
·       Exemptions and their relevance
·       Place of Provision of Services Rules
·       Central Credit and related issues in the context of negative list
·       Procedural and Compliance issues

Who should attend/participant’s profile: The Programme will be found relevant and useful for all those working in the areas of Finance, Accounts, Taxation, and executives in other key functional areas who have service tax issues.

Faculty: The Programme has been structured and will be delivered by Mr M S Mani, ACS, FCMA who is consultant on Indirect Tax matters. Mani has been associated with various Indian and MNC companies and is working in a Senior Management position with a leading multinational at Mumbai. He has around 23 years of post qualification experience in the areas of Finance, Accounts, Indirect Tax and Supply Chain.

Participation Fee:
·       Rs. 2500/- for CII Small Scale Members (also applicable to CII-YI and CII-IGBC Member)
·       Rs. 3000/- for Medium and Large scale CII Members
·       Rs. 3500/- for Non-Members.
·       Special 10% discount on 3 nominations and above from one company.

·        Seats being limited, Prior Registration is recommended.
·        Registration would be on first come-first served basis.
·         Nomination will be registered on receipt of Registration Form and requisite fees (cheque to be drawn in favour of ‘Confederation of Indian Industry’ payable at Panaji)
·        Fees include participation, course material (hard copies), working lunch, tea/coffee and Service Tax (12.36%).
For more details you may contact John Fernandes– (9822982979

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