Secrets Of Formula 1 Helmets

Felipe Massa’s dramatic accident during qualifying for the Hungarian Grand Prix brought driver safety - and in particular the great strides made in helmet design over the past few years - into much sharper focus.

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Sensible Capital Gains Taxation

A capital gain is income derived from the sale of an investment. A capital investment can be stocks, a home, a farm even a work of art. Capital Gain is the difference between the money received from selling the asset and the price paid for it.

"Capital gains" tax is really a misnomer. It would be more appropriate to call it the "capital formation" tax. It is a tax penalty imposed on productivity, investment, and capital accumulation. Since the tax is paid only when an asset is sold, taxpayers can legally avoid payment by holding on to their assets - a phenomenon known as the "lock-in effect".

There is one other large inequity of the capital gains tax. It represents a form of double taxation on capital formation. This is how economists Victor Canto and Harvey Hirschorn explain the situation:

A government can choose to tax either the value of an asset or its yield, but it should not tax both. Capital gains are literally the appreciation in the value of an existing asset. Any appreciation reflects merely an increase in the after-tax rate of return on the asset. The taxes implicit in the asset's after-tax earnings are already fully reflected in the asset's price or change in price. Any additional tax is strictly double taxation.

The Direct Tax Code. introduced by the Government will replace India’s antiquated Income Tax Act of 1961.The draft is likely to become law only in 2011 and is currently open to public scrutiny and comment. It hopes to create a modern progressive regime of taxation in India. However the proposed treatment of Capital Gains is very regressive.

Swaminathan S Anklesaria Aiyar has written an excellent article about Taxation of Capital Gains in the Economic Times. Read more here

Why Text Messages Are Limited To 160 Characters

Did you ever wonder why text messages(SMS) are limited to 160 characters? No?

SMS messages simply fill the remaining bytes in the packets that GSM phones use to coordinate with the network. After the coordination protocol and some SMS headers are counted, there are 140 bytes remaining in the packet. With some simple packing techniques, those 140 bytes can be used to encode 160 7-bit characters, and THIS is why SMS messages are limited to 160 characters.

Interesting, isn't it? Read more here

Financial Crisis? No, Capitalism As Usual

The August 5 edition of the Economic Times had an excellent article by Swaminathan S Anklesaria Aiyar titled "Financial Crisis? No, Capitalism As Usual"

In this article he makes the case that proclaiming the death of capitalism is premature and booms and busts are integral to Capitalism's 'Creative Destruction' process.

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It's The Revenue Deficit, Stupid!

Budget 2009-10 has projected the Fiscal Deficit at 6.8% of GDP. This is certainly a cause for concern, but even more alarming is the four-fold increase in the Revenue Deficit.

I will articulate my worry about the Revenue Deficit, but first some basics because these two terms are easy to mix-up.

What exactly is the Fiscal Deficit(FD) and the Revenue Deficit(RD)?

The fiscal deficit is the difference between the government's total expenditure and its total receipts (excluding borrowing).

The revenue deficit is the difference between the government’s current (or revenue) expenditure and total current receipts.

Basically,

RD = Current Revenue(from taxes) - Current Expenditure(salaries, repayment of past borrowings etc)

FD = RD + Capital Expenditure

What's the current status?

The RD for 2009-10 is budgeted to go up an astonishing 412% from that estimated for 2008-09. In 2008-09 the RD will account for 70% of the FD. This is the highest RD since the reform process began in 1991.

Problem with a large RD

Revenue deficit does not result in the creation of any assets. It merely adds to the interest and repayment burden without creating the capacity to repay the debt. If the reason for a large FD is Capital Expenditure(building roads, ports, power plants etc) it will prove to be useful for the economy in the long run. The increased expenditure has further multiplier effects because of the subsequent spending of those whose incomes go up because of the initial expenditure. The overall rise in economic activity in turn means that the government’s tax revenues also increase.

To give a simple analogy, if the FD is like a household borrowing to build a house, the RD is akin to borrowing to eat and drink and be merry.

The Road Ahead

Logically, there are two ways in which the deficit can be reduced — by raising revenues or by reducing expenditure. Reducing expenditure is always difficult in India. Raising revenues is easy only when the economy is booming. During a downturn, tax revenues fall. Levying more taxes will worsen the slowdown by dampening consumption.

Remember, it took us three years to get the RD down from 4.39% of GDP in 2001-02 to 2.59% of GDP in 2005-06. During these years taxes grew at a CAGR of almost 30%. This performance is not going to be repeated in the next few years.

The targets indicated in the government’s medium-term fiscal policy statement — RD (3%) and FD (5.5%) by 2010-11 and RD (1.5%) and FD (4.0%) — lack credibility. It is highly unlikely that the government will achieve the ambitious targets set out in its medium-term plan.