I thought they were kidding when they said "Food Coupons"

We are all so happy when at the end of every month we are given this fresh set of food coupons and told that this will help cut our taxable income. To me, this doesn’t look like a fair deal. In case you don’t know, here’s how it works from the perspective of everyone involved:

An employee

To reduce tax liability for their employees, some companies would give a food allowance on a daily or monthly basis. As this was not part of their income, it couldn’t be taxed. But the IT (Income tax) department thought that money given as allowance was being redirected elsewhere. This led to the concept of coupons that would be accepted at food joints only. It means that an employee gets a part of his income as food coupons.

A retailer

The organization issuing the coupons offers to collect coupons from the retailer every 15 or so days in exchange for cash if he is willing to accept coupons from his customers. There’s one catch though, only 95% of the coupon’s value is actually refunded, the remaining 5% has to be borne by the retailer. That begs the question… why does the retailer agree to this? It’s because all the other retailers are doing it. He knows that most employed people in his area will have to spend all their food coupons within one month, which means they would prefer stores that accept those coupons. In other words, it is an assurance of business.

A few food outlets (only a few) may actually increase their prices in order to recover that 5% loss from their customers.

The organization issuing coupons

Well, for them, it’s a dream come true. They literally print their money. For every rupee that this organization prints and distributes to different companies, it earns about 5 paisa as profit.

The IT department

It now has all the assurance it needs that the tax break it is providing will not be misused.

When somebody is making money, somebody else is loosing it. It’s obvious that in this case everybody other than the government is on the receiving end. Basically, a part of the income tax paid by employees is now shared by the employee and the coupon issuer equally!

The figures are surprising. If you come in the <5 lpa tax bracket, your tax rate is 10%. Generally, employees are given approximately 2000 rupees worth of food coupons every month i.e 24000 rupees a year. Given that coupon issuers have a profit margin of 5 %, you eventually end up paying 1200 rupees to the coupon issuer rather than paying 2400 to the government.

There are two rather subtle effects of this. I confess that both are speculations and I cannot prove them.

• When the government can’t make enough money from income tax, it has to find other ways to raise money including other forms of taxation.
• It is unfair to self employed people like street hawkers and small scale businesses in the food retail sector because our coupon issuers do not have the resources or the inclination to collect coupons from outlets with low sales or are not even registered (in the case of street hawkers) as that would increase their operating cost. From a consumer's point of view this also reduces the available choice.
  

The way I see it, when an employee accepts food coupons, he not only makes a promise to spend that amount on food but also that he will spend it at the outlets supported by the issuer only. This is contrary to one of the underlying concepts of progressive taxation (increasing tax with income to promote economic equality). It makes it more difficult for small scale businesses to compete with well established ones.


A simple solution

Do you think it is safe to assume that anybody who earns enough to fall into the medium tax bracket (40000 per month) will spend atleast 66 rupees a day on food? Well, that is exactly what the IT department asks that person to prove when he accepts 2000 rupees (Rs 66 per day) worth of food coupons.

These coupon issuers can be taken out of the equation if the government is also ready to make this safe assumption and provide every tax payer with a food rebate on his taxable income.

A solution to that annoying accounting problem

It was a great weekend ... but now we get to the dreaded task of figuring out who owes whom (and how much)? Heres a simple spreadsheet that does the task for you.

http://www.megafileupload.com/en/file/271916/accounting-xls.html

You only need to edit the parts with the grid

Under the "expenditures" columns, you enter how much money each guy spent (one transaction per row) and in the "paid by" columns, you enter who paid for that transaction (in terms of the ratio of the total money spent).

So if there are 3 people (check the xls file): pqr, xyz, and abc
transaction 1 : they spend 10, 12, 12 (34 total) respectively and xyz pays for it (ratio 1 i.e 34/34)
transaction 3 : they spend 500, 200, 150 (850 total) respectively while pqr and xyz pay 350 (ratio is 350/850) and 500 (ratio is 500/850) respectively.

If you make any error while entering values, the leftmost cell of the row with the error will turn red.

The last row shows who needs to pay (negative and red) and who needs to be paid (positive and green)

The right to refuse service

Isn't it irritating when you hail a cab, tell the driver where you want to go, only to watch him drive away with an indifferent look on his face? Most of us would agree. The question is whether this is justified? Well, the law certainly agrees. If you were to lodge a complaint against the driver, he would certainly be fined. There's no point looking at the legality of this issue. But is it fair? I think the best way to decide that is by looking at similar situations. Two things that first came to my mind are:

The Railway

Ever wondered, why you never see a train almost empty when it is half way through its journey. According to the railway's reservation system, there are a certain number of seats reserved for passengers who travel longer distances. This is done using a well thought out quota plan. So, once a certain proportion of seats have been booked by passengers traveling short distances, any additional tickets to such destinations will be put under a waiting list (even though there are vacant seats on the train).

Internet service providers

When you ask certain ISP's for a new internet connection, they do something called a "feasibility check". Now that's a misnomer. It's actually more of a "profitability check" which looks at the setup charge required to get you the connection as opposed to the expected payoff (rent collected from each subscriber times the number of expected subscribers). If the numbers don't add up, your internet connection becomes infeasible (for you) and unprofitable (for them).

Now if you compare these examples to what a rickshaw/cab driver does, you can see the correlation. They are both CHOOSING their customers in order to maximize profits. It is also obvious that doing this optimizes resource utilization. In fact, this in turn helps reduce prices for the customer as well.

There are two basic but contradictory ways to look at it

• When there is a service being offered, it should be offered to every customer irrespective of his requirements.
  
• The provider of a service decides who he serves based on his own interests
  

Whichever philosophy you believe in, you need to apply it everywhere and not selectively. That would be fair.

PS : If you want to know more about the railway reservation quota system, here's a link that explains it in greater detail.

Why should Google be interested in cab companies?

You’re new to the city and plan to go to a movie theatre on a Saturday evening. You have no idea where this theatre is because chances are you’ve booked the tickets online. So you do what anyone with a computer and an internet connection would do. That’s right ...Google Maps. You go through the drill ... point A, point B, get directions and you have it, the shortest path, the distance and expected time right in front of you. There’s just one problem, I think in our cities we need to start measuring how far places are in terms of time rather than distance. But doing that conversion requires knowledge of way too many parameters like time, day of the week, road conditions, traffic patterns, weather, construction projects and even events like political rallies, festivals etc all of which vary from place to place.

Well the problem and the causes are pretty obvious, what we need is a cheap and effective solution, cheap being the keyword. One thing that is common between every street in every city is the ubiquitous TAXI. Recently, in India, we have seen private companies entering this business. The interesting thing is most of the taxis owned by these companies are equipped with a GPS. Basically, if you look at it another way, you’ve got thousands of these GPSs crawling all over the city’s roads 24*7 and that is going to generate a lot of useful data.

Here is how it can work, all the data from the GPS’s is uploaded to a main server. This effectively gives you a snapshot of the city map with lots of dots corresponding to positions of all the taxis. Now let’s take these ‘snapshots’ at regular intervals (let’s say every 2 minutes). Comparing successive snapshots, find how much every dot on the map (or taxis) moves in the 2 minutes.

Then we use that wonderful equation that we all learned in 2nd grade. Speed = distance/time. That’s it!!
Here is a sample of a simple city and two taxis that gives us the instantaneous speed for two streets

At 7:00 pm At 7:02 pm

Do this for the whole city and you now have the average speed of traffic on every city road at that instant. Now if you do this, let’s say at 7pm on a Wednesday then it’s pretty obvious that these values of speed would hold good every Wednesday at 7pm.

That brings me to the next part, if the above calculations are repeated every 2 minutes for an entire year; you would get a good idea of variation in average speed over the year (for e.g, streets in low lying areas would show a drastic reduction in the rainy season). That takes weather out of the equation. 26th July 2010 will have the same weather pattern as 26th July 2011. Basically the longer you observe, more patterns start showing up.

One instant: road conditions

One day: rush hour traffic pattern

One week: daily pattern i.e. weekends vs weekdays

One year: weather patterns

Additional features

A graphical representation of avg. speed data would show congested roads (low avg speed) in red, clear ones in green..etc. Once you have a good database of traffic patters, say after 2 years or so, a time varying traffic map can be made. You drag a pointer on a timeline and the map varies accordingly.

Once, this is achieved, the applications could be huge. Other than obvious ones like traffic management and city planning etc there are environmental benefits as well.

Down to business

Isn't it always about the money? More often than not, for something to work, someone needs to make a lot of money out of it. Who pays for the server setup, the software applications, system maintenance, the GPS etc?

An interested group would be real estate developers (to do a quick analysis of how convenient a place is). Railways could adjust train timings to suit traffic flow. In the future, if we are able to make smart cars, their developers would certainly be interested in data like this. (I'm allowed one lame example). But, imagine a car that downloads data from one of these servers about the route with the best traffic flow and then drives you through it.

On a more serious note, here's one scenario, cab companies agree to share GPS data with let’s say, Google for a hefty fee. Google then uses this data in its maps application to give you a very good estimate of TIME taken to go from your home to the theatre based on data collected on a Saturday evening last July and you find out, the “shortest” route is not that short after all.

What’s in it for Google?

It adds relevance to Google map’s results as they now take into consideration local factors

What’s in it for the cab companies?

Money out of nothing!