LTA’s cash voucher scheme, the size of which is set at Rs 28,000 crore, may be insufficient to attract much demand, as only 10-15 percent of eligible employees would be able to take advantage of the scheme, SBI Reseach said in a report. .
Sitharaman announced on Monday a special plan that allows the collection of license travel concessions / allowances (LTC / LTA) and a special festival advance plan for government employees to boost consumption.
However, the Rs 8,000 crore festival advance scheme for government employees, the least economically affected section in the ongoing pandemic, could give a boost to discretionary spending, but not by a large margin, according to the report.
“The consumption boost proposal ignores the vital fact that the increase in savings has been due to the reduction of discretionary consumption in the most fragile groups. The fragile group targeted by these proposals has a higher marginal propensity to save, and any additional savings are more likely not to be consumed, “the report said.
A fractile is the cut-off point for a certain fraction of a sample.
LTC / LTA Sops
Depending on the plan, cash may be available in lieu of the leave charge, as well as the fee in case the employee has not made use of the Leave Travel Concessions (LTC). But there is a condition: the tax would be exempt only if the employee purchases goods and services worth three times the amount paid before March 31, 2021.
Additionally, spending must be made on goods that attract a GST of 12 percent or more from GST-registered suppliers and purchases must be made in digital mode. SBI said it is doubtful how many people will take advantage of the LTC scheme, as those who do use the scheme have to pay the GST out of pocket.
“They would be better off paying taxes on the amount of LTC used instead. The scheme is unlikely to work, unless the government decides to pay the GST component also above the amount of the right to the fee, as many PSBs have done. Also, since LTC covers not only employees, but also their dependent family members, the reduction in personal income will be enormous, “said SBI.
For example, employees eligible for business travel get a round-trip fair value of Rs 36,000. For a family of four, this would be Rs 1.44,000. The total expenditure required amounts to Rs 4,32,000 (Rs 1,44,000 x 3), in addition to the GST amount of Rs 1,03,680.
In another case, if a person is eligible for Rs 50,000 as a fee, then they would have to spend Rs 1,50,000 on goods or services and pay a minimum GST of Rs 18,000 as 12% of GST. Generally, you would have to fork out Rs 1,18,000 out of pocket to get Rs 50,000.
“And in today’s unprecedented situation, when there is so much uncertainty, people will not be willing to spend that much,” the report said.
Holiday Advance Scheme
Just in the event of the festival preview, SBI Research believes that there could be some additional revenue on top of current revenue. “This is where you can expect demand to get a boost through consumer discretionary,” he said.
SBI said the festival’s advance scheme is similar to the interest-free advance provided to certain employees of the PSU bank, in which they receive a month’s salary paid in 12 interest-free installments. This scheme was offered until the Sixth Payment Commission to officials who do not appear in the official gazette. It has now been revived once for all government officials. The Center and the states are expected to spend Rs 4,000 crore each under this scheme.
“In our opinion, central government employees are the least affected in terms of savings due to the lockdown and without wage loss. This measure will boost consumer spending to some extent for some state government employees, who have faced salary problems, but It depends on how many employees take advantage of the plan given the conditions that
they have been imposed, “he said, noting that there are around 35 lakhs of central government employees who would be entitled to this benefit.
SBI believes that most of that consumption could be in electronic items such as mobiles and tablets.
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