22.50 ndian onom
the third person (i.e. neither the vehicle owner nor
tAx inversion the insurance company)–the person who becomes
This is a situation of tax structure. This takes place victim of an accident by the vehicle.
when a firm bases its headquarters in a low tax Till December 31, 2005, the premium for
country while keeps its material operations in the insurance was fixed by the Tariff Advisory
the high tax countries (generally their country Committee (an arm of the IRDA) but since then
of origin). This way, firms cut their tax payment it has been done away with. However, IRDA still
liabilities. This is legal and is a method of tax continues to fix the premium for the mandatory
avoidance. Multinational corporations (MNCs) third-party insurance, though the insurance
keep doing this—several MNCs of the US-origin companies have the freedom to decide on prices
shifted their headquarters to the UK, during 1970s for comprehensive cover.
and 1980s. The countries in the world which have The amount of compensation is largely
very low tax regime for corporations have emerged decided by the earning capacity of the accident
as a very attractive loactions for the headquarters victim.
of big corporations. Bermuda, Virgin Islands, etc.
are such countries (popularly known as the ‘tax thirD wAy
An economic philosophy (better say rhetoric)
tAylor rule which propagates it is neither capitalism nor
socialism but a third (pragmatic) way.
A rule/concept aimed establishing a relationship The idea was popularised in the late 20th
between the rate of inflation in an economy and in century by some political leaders having leftist
its aftermath the nominal interest rate announced leanings, including bill clinton and Tony Blair.
by the Central Bank of the country. Proposed by Though it has been hard to pin down it was earlier
J.B. Taylor (1948) this rule suggests that when used to describe the economic model of Sweden.
there is an one percent increase in the inflation
rate, the central Bank increases nominal interest tight money
rate by more than one per cent. Though such a
relationship between inflation rate and nominal When money has become difficult to mobilise, the
interest rate of the Central Bank is difficult to term is used to show the ‘dear money’ when the
establish, the concept has an academic importance. rates of interest run comparatively on the higher
Unemployment which results from the automation
of the production activities (i.e., machines replacing The notes and coins the commercial banks keep
men). to meet everyday cash requirements of their
customers (this is counted as part of their CRR).
Motor third-party insurance or third-party
insurance is a statutory requirement under the A prosposal of imposing small tax on all foreign
Motor vehicle Act in India–also known as ‘act only’ exchange transactions with the obejctive to
cover. A person purchasing a motor vehicle has to discourage destabilising speculation and volatility
go for this compulsory insurance which benefits in the foreign exchange markets.