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Old 12th January 2017, 19:55   #2026
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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If a business model/channel becomes unviable (in favour of another one) because of transaction costs imposed on it by govt - Is it really fair to that business?

... - I'm asking from an ethical angle.
I dont get the point. Were the small businesses running on a margin of 0-1% such that the 1% transaction charges now made the business unviable?

Shouldnt the rules be simple? Irrespective of I am in a business or salaried, I pay the tax based on my income. People with small salaries dont pay tax. And nobody expects a businessman with small income to pay tax.
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Old 12th January 2017, 20:57   #2027
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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If a business model/channel becomes unviable (in favour of another one) because of transaction costs imposed on it by govt - Is it really fair to that business?
Business models go unviable all the time as direct consequences of government actions (and other factors). It is among the various risks the entrepreneur takes while employing their resources. It is totally fair, and anyone who is not prepared for this to happen is really not cut out to be an entrepreneur. The classic Indian example (taught in b-schools) is that of ITC - drop in revenues due to regulatory action aimed at reducing tobacco consumption has been offset by new business lines in FMCG and hospitality.

If you are running a business with such low margins that a 1% transaction cost makes it unviable, you probably are better off putting your capital in the bank and earning interest. How would you run it if some other cost - say, electricity cost - went up by 10%?
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Old 12th January 2017, 21:28   #2028
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If a business model/channel becomes unviable (in favour of another one) because of transaction costs imposed on it by govt - Is it really fair to that business?
Well a group of auto rickshaw & cab drivers in Kerala are also facing the same dilemma here. And that too not because of any government enforced rules. Uber & Ola arrived in Kerala, started offering rides at much reduced rates. Off course Kerala being Kerala, the "old group" (of drivers) had an innovative scheme to stop this. Beat up the Uber & Ola cabbies; who are also actually "workers" who are trying to make an honest day's living.

Uber & Ola, just brought in a disruptive change. It offered a new business model which was beneficial for much more people. Ideally the auto rickshaw and & taxi drivers could also have launched their own version of Uber & Ola. But that takes much more effort than beating up people.
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Old 13th January 2017, 10:16   #2029
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@sachinpk; I am not sure that Ola and Uber are actually running at a profit. Read Zero to One by Peter Thiel to get an insight into disruptive economics. However, I do not support the Goonda tactics of the cabbies. Remember a similar thing happened in Ladakh, though I can assume that Hill/Mountain driving is an art which some never learn. Disruption always facts resistance.
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Old 13th January 2017, 10:37   #2030
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

How many online businesses are really profitable ? Everyone is trying to burn cash and monopolize the market with eye on profits in the future (not sure when).

Ideally, cash should be banned and every electronic transaction should deduct various taxes at source giving no chance to the receiver to deceive.
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Old 13th January 2017, 10:43   #2031
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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How many online businesses are really profitable ? Everyone is trying to burn cash and monopolize the market with eye on profits in the future (not sure when).

Ideally, cash should be banned and every electronic transaction should deduct various taxes at source giving no chance to the receiver to deceive.
Ideally yes, but in reality the shopkeepers just hike the price to effectively get the same amount he would get if not paying any tax. In simple words, shopkeepers will just transfer his tax liability to the customers. This happens all the time if you want to pay using credit card at organised markets like nehru place, gaffar market, sarojini nagar market etc (read any market in India), they charge 2% extra, citing that the bank charges 2% from them on credit card sales.
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Old 13th January 2017, 11:07   #2032
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by m8002? View Post
I dont get the point. Were the small businesses running on a margin of 0-1% such that the 1% transaction charges now made the business unviable?

Shouldnt the rules be simple? Irrespective of I am in a business or salaried, I pay the tax based on my income. People with small salaries dont pay tax. And nobody expects a businessman with small income to pay tax.
these guys are trying to avoid sales tax, not income tax. I know that a lot of them run on margins of a few percent, so 1% really does make a difference

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Business models go unviable all the time as direct consequences of government actions (and other factors). It is among the various risks the entrepreneur takes while employing their resources. It is totally fair, and anyone who is not prepared for this to happen is really not cut out to be an entrepreneur. The classic Indian example (taught in b-schools) is that of ITC - drop in revenues due to regulatory action aimed at reducing tobacco consumption has been offset by new business lines in FMCG and hospitality.

If you are running a business with such low margins that a 1% transaction cost makes it unviable, you probably are better off putting your capital in the bank and earning interest. How would you run it if some other cost - say, electricity cost - went up by 10%?
then there would have been a similar outcry - we see people demonstrating against fuel price hikes all the time.

business models becoming unviable because of govt actions is ok, but when the govt actions benefit channels and business models where businessmen who have been shown to have strong ties with the current govt have interests - one can't help but wonder about regulatory capture & conflict of interest.

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Uber & Ola, just brought in a disruptive change. It offered a new business model which was beneficial for much more people. Ideally the auto rickshaw and & taxi drivers could also have launched their own version of Uber & Ola. But that takes much more effort than beating up people.
I'm not a fan of the old school cabbies & rikshaw dudes either, but one place where the govt should actually put on its regulatory shoes is predatory pricing - It helps businesses with deep pockets and connections. Uber and ola are running on losses trying to put the existing cab operators (who have otherwise viable business models) out of business.

The same is happening for modern trade where apart from one or two old school retail chains, all the new players are running on massive losses, trying to kill off the unorganized retail sector. Which then forces the unorganized sector to have to resort to such illegal means to compete.

Last edited by greenhorn : 13th January 2017 at 11:10.
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Old 13th January 2017, 11:25   #2033
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these guys are trying to avoid sales tax, not income tax. I know that a lot of them run on margins of a few percent, so 1% really does make a difference
Are you sure on this? Retailers like DMART offer min 6% discount on MRP. Then one should believe that a small grocer has atleast this much margin.
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Old 13th January 2017, 11:32   #2034
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Are you sure on this? Retailers like DMART offer min 6% discount on MRP. Then one should believe that a small grocer has atleast this much margin.
I work for a retail chain outside India, and one thing you can better negotiate with your vendors during sourcing is lower landed costs for higher volumes. It's therefore easy to see how a smaller grocer operates against a smaller profit margin.
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Old 13th January 2017, 11:35   #2035
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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I work for a retail chain outside India, and one thing you can better negotiate with your vendors during sourcing is lower landed costs for higher volumes. It's therefore easy to see how a smaller grocer operates against a smaller profit margin.
That is true.But these guys can buy from places like DMART or METRO and get atleast 6% margin right?
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Old 13th January 2017, 14:49   #2036
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

Bloomberg may not be a very reliable source of information. But giving two links
Contrary to fears of slowdown, factory output grows 5.7% in November
Indian Bank Unveils Surprise Repayment Boost From Modi Cash Ban
“Banks with exposure to sectors in which most of the revenue is generated in cash -- like commercial vehicles, gems and jewelry and small and medium enterprises -- have seen repayment by many delinquent borrowers,” said Siddharth Purohit, an analyst at Angel Broking Ltd. in Mumbai. “They have used the money which has become non-legal tender post the cash ban to repay or prepay, giving a benign push to asset quality.”
So lot of cheapos out there who would gleefully default on the loans (and gloat about it) have all now ran to their banks and closed off their dues. I remember one person saying that a move like demonetization at least gave him a feeling that it is worth to be honest. Until then it seems even his friends used to make fun of him, and called him a loser because he always operated within the law.

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Originally Posted by greenhorn
these guys are trying to avoid sales tax, not income tax.
A tax levied is there for a purpose. A person who starts the business knows that a tax (be it in what ever name) has to be paid. He then wilfully defaulting it saying that it would hit his margings, is fundamentally wrong. If he feels that the sales tax is unethical, or way too high he still have options to push for a change in the tax slabs or move to another businessman. Can a thief say that punishment meeted out for his crimes should be less, as he is finding it a waste of time to be in prison?

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Uber and ola are running on losses trying to put the existing cab operators (who have otherwise viable business models) out of business.
I do agree with you on this. And even the government seems to know the shady deals from these cab aggregators (like surge pricing). The existing cab operators mainly lost their sympathy because of their boorish behaviour and always charging at MRP. The rules controlling taxi business only sets the rate schedule as "cannot exceed Rs.nnn". What the cabbies do is to always charge the maximum rates possible, and that too after strong "interviews" of the passenger. What cab aggregators are trying to do is to go lesser in rates, but expecting that to be recover the loss by making more trips.

Last edited by sachinpk : 13th January 2017 at 14:54.
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Old 13th January 2017, 14:54   #2037
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the 6% is not across products and categories. these discounts are typically on higher value items and not the staples. if staples are being sold below market price, they're probably being sold as loss leaders to drive sales in other categories & premium segments, or the other way round
An example is, a hypermart sells mobile phones and food. Food needs a lot of working capital as they work with local suppliers and lesser margins. So they sell mobile phones and big screen tv's at extremely low markups on the days they get stock(sometimes even at cost or loss)
For mobile phones, these shops get around 30 days of credit, during which time they use this money as working capital to finance the food business.
This hurts both mobile retailers and food retailers outside. Good for customers, but not a sustainable practice. Ethically a grey area, and if you are a local food retailer, you'll be puzzled how these shops can sell at prices below their cost.

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A tax levied is there for a purpose. A person who starts the business knows that a tax (be it in what ever name) has to be paid. He then wilfully defaulting it saying that it would hit his margings, is fundamentally wrong. If he feels that the sales tax is unethical, or way too high he still have options to push for a change in the tax slabs or move to another businessman.
While i agree on the concept of a tax and the fundamental purpose, the current rates are a bit too high - Its almost as if the govt took a reasonable tax rate, and then divided it by the compliance % to take care of the shortfall, and then compliance became a cat and mouse game. And most people are of the opinion that the rates are set arbitrarily.
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Can a thief say that punishment meeted out for his crimes should be less, as he is finding it a waste of time to be in prison?
A better analogy would be speed limits. Most of us on team bhp agree that speed limits are needed and serve a purpose, the speed limits on most indian roads are unreasonable, and in need of reform.We all try to get the limits set at more reasonable limits, but we all know how that ends. So most of us flout the rules, and if you get caught, consider it as a part of the cost of travelling on public roads. Most of these small businesses feel the same way about taxes.

Now imagine if they installed CCTV's along every road and started handing out tickets left and right - Does this mean that we should not protest because what we are doing is wrong in the first place?

Yes the ministry says that discussions are on to reduce taxes in the long run, but what about now ?

Last edited by greenhorn : 13th January 2017 at 15:14.
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Old 13th January 2017, 15:44   #2038
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I think the events of November 8th have led to a major change in the rules of business. Whenever there is such transformational change, there is bound to be some pain. I believe that businesses will eventually settle down and stabilize. I do hope however that the government makes the rules once and for all and then allows people to work within the realm of those rules. Frequent changes/disruptions are not appreciated and lead to unnecessary worry/stress etc.

Small businesses are usually the first to be negatively impacted when such changes occur, but they are also resilient enough to bounce back with some changes to their operating model. I'm very confident that it will be BAU before long for them as well. If not, they will certainly adapt to the changing rules.
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Old 13th January 2017, 16:28   #2039
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business models becoming unviable because of govt actions is ok, but when the govt actions benefit channels and business models where businessmen who have been shown to have strong ties with the current govt have interests - one can't help but wonder about regulatory capture & conflict of interest.
Are you speaking about any specific businessman or woman? If yes, please mention the names and we could have a meaningful discussion because in my view, any government action will be good for some businesses and bad for others. If we keep accusing the government of favouring those who benefit every time a decision is taken, then the government will not be able to take any decisions at all. When the government decided to phase out incandescent lamps in favour of CFLs the companies making the former suffered; the ones making the latter prospered. Did the latter use their influence to get the regulation written in their favour?
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Old 13th January 2017, 16:41   #2040
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Originally Posted by greenhorn
Its almost as if the govt took a reasonable tax rate, and then divided it by the compliance % to take care of the shortfall, and then compliance became a cat and mouse game
The bolded part is very subjective. For me a reasonable tax rate is in which government pays me, when I buy some thing (rather than the other way round) . For some others it could be that even a 10% sales tax is okay. Also sales tax is a state subject matter, and that is why there could be variances across the states. GST is supposed to bring an end to this.

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So most of us flout the rules, and if you get caught, consider it as a part of the cost of travelling on public roads. Most of these small businesses feel the same way about taxes.
Then why should any one (even for a moment) sympathise with them. They knew that they were doing things wrong, but hoped to get away, but now for a change they have been caught literally with their pants down. Now trying to come up with more excuses is going to do no good.

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Now imagine if they installed CCTV's along every road and started handing out tickets left and right - Does this mean that we should not protest because what we are doing is wrong in the first place?
Let them install CCTV at every door step, but they are only issuing tickets to people who have been caught for an offence (speeding) am I right? So for me (who always go below the speed limits), why should I even bother? Earlier my friends used to make fun of me because I was not "capable of speeding", a dar pok, non-risk taker and thus a useless person. Now I see the same friends who made fun of me, standing with their pants down to their ankles in front of the police man who is busy writing a ticket .

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Originally Posted by Lalvaz
Small businesses are usually the first to be negatively impacted when such changes occur, but they are also resilient enough to bounce back with some changes to their operating model.
I stay in the city suburbs in a kind of village area. An area where many shops still give stuff on credit to their usual customers. And today I find one such shop having a PayTM board. From what I could glean, any shop which has at least one staff who is a bit tech savvy, they have moved to PayTM etc. The only person who has not changed is the local grocer who is an old man. No big difference for him as well, as his customers were all buyers who use to buy stuff on credit and then pay up at the start of the month. The yuppie crowd any way does not come to his shop, and goes to the super markets a bit far away where every thing is kept packed.
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