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‘Bank Transaction Tax’ as a Replacement of Most Other Taxes in India?

Published Date : Apr 4, 2017

Arthakranti is a “tax research organisation” that reportedly claims to be the brain behind the Indian government’s demonetisation of 500 and 1000 Rupee notes. Founder of Arthakranti – Pune-based Mechanical Engineer, Anil Bokil, asserts that the organisation has actually come up with and presented a five-point proposal for completely overhauling India’s monetary and taxation system. It has also subsequently come up with a secondary proposal ironing out some of the specifics of its implementation.

The big question remains as to whether the government plans to implement this system in its entirety.

The 5 basic proposals of the plan by Arthakranti are:

1. Withdrawal of all 56 taxes including central, state and local body government taxes. This will exclude customs or import duty.

2. Replace existing taxes with Bank Transaction Tax (BTT). Every transaction routed through a bank will attract a deduction as transaction tax (say 2%). This tax will be credited at all government levels – central, state and local, at a fixed percentage (say 0.7%, 0.6%, 0.35% respectively). Banks will get a small percentage of it (say 0.35%).

3. Total withdrawal of high denomination currency from circulation (say above Rs 50, which was proposed in last decade of 20th century, when its value was different).

4. Cash transactions will not attract BTT but the upper limit of cash transactions should be Rs 2,000. That means people with a low income do not have to pay taxes. Once their income gets increased they have to pay taxes automatically.

5. Government should take legal provisions to restrict cash transactions up to a certain limit (say Rs. 2,000)

Some Basic Advantages of Implementing Banking Transaction Tax:

1. As things currently stand, India’s poor does pay indirect taxes on almost all commodities. This is a heavy burden. With the abolition of all existing taxes and implementation of BTT, the burden of taxes on poor Indians will reduce considerably.

2. Currently only 3.81% of Indian population pays income tax. They feel the pinch because the remaining 97% pay nothing on their income and yet use all the infrastructure. BTT will be a small pinch on everyone, but a very small one. Yet, the poorest section will be excluded.

3. Cash transactions will become impractical, and an estimated 80% of cash transactions will be converted into banking transactions.

4. Tax base will widen and that will fetch adequate revenue for each of the three levels of government.

5. There will be a lot less procedural red tape. Taxes will be turned over to banks (TDS) on credit automatically.

6. Since Banking Transaction Tax does not require any administrative work or paperwork on account of tax payment, government staff can be reducedmanifold. Monies from transaction tax can easily absorb fair severance packages.

7. With the parallel economy’s oxygen cut off, it will be brought into the banking system.

8. Incentive for and possibility of tax evasion will disappear. Orchestrated bankruptcies, etc, will die out immediately.

9. There will likely be a downward revision of prices across board, as high tax rates that used to be factored into prices will be abolished.

10. Individuals will have more purchasing power.

11. There will be availability of loans from banks at lower interest rates. The lower home loan rates will help the real-estate sector. The price of real-estate will reduce, which will help the common man. 

12. Effectively blocking the circulation of fake currency notes. Terrorist and anti-national activities will be choked or even completely eliminated.

13. There is likely to be significant growth in employment.

14. Indian companies will become globally competitive.

15. Private lenders’ exploitation of the poor will cease.

16. Government debts will be repaid on priority. The Fiscal deficit will become history. 


Possible Teething Issues & Supplementary Rules that Will Have to be Put into Place:

Banking Transaction Tax's effect on bank interest while disbursing loan to the loan account:

Arthakranti proposal for this, from its website:“The Transaction Tax will have an effect of certain deduction when loan amount is credited to loan account. To avoid this, loan can be disbursed directly to debtor's expenditure account. It means that capital/term loan will have to be disbursed like cash credit disbursement procedure. However, bank may have an effect of Transaction Tax when loans are being recovered. It means, except bank share, rest three allocations of Transaction Tax will automatically have debit effect to particular bank account which will be a net revenue loss to the bank. To avoid this, RBI has to consider this effect while deciding prime money lending rate or Bank rate considering 2 % or 3% (the Transaction Tax rate) as a reference.”

Dealing with Corruption at a Micro-level:

Arthakranti proposal for this, from its website:A number of steps can be recommended to introduce an element of deterrence and ensure accountability:

• Every bank account could be linked to a unique identification number like P.A.N.

• It can be binding by Law on all Banks in the system to carry out Transaction Audits of all accounts in each branch and submit them periodically to the Government, duly certified by Accounting Professionals.

• Every individual could be required to disclose the source of receipts above a pre-determined limit once a year to the Government, duly certified by Accounting Professionals as required by law.

Through such means, all dishonest and anti-social elements can be effectively tracked and charged under strict laws of the land.”

Creating the Political Will to Implement Transaction Tax, in Lieu of the Need for Political Funding, etc: 

To be elected, political parties need to have full-time staff for communication and expanding their support bases. They need huge funds for canvassing, running campaigns of public interest, etc. There is currently no provision for ensuring adequate official funding for the democratic process. Arthakranti has presented a secondary proposal, which covers 'Political Funding', including projected calculations. It has proposed that provision will have to be made from the National expenditure plan. Fortunately, with the abundant revenues available post-implementation, this will not be difficult at all.

Is there a similar law anywhere?

Arthakranti’s proposal is for the Indian context. But, recently, similar proposal has been adapted by a US Senator and has been put up for a feasibility study in the U.S. (Ref - www.theorator.com and www.heartland.org/pdf/15849.pdf.) Another comparable proposal has been put up by an American Professor, Dr. Edgar Fiege, primarily aimed at reducing complexities of the taxation system. (www.apttax.com ).

On a typical day, RTGS (Real Time Gross Settlement) handles about 60,000 transactions an approximate value of Rs.2,700 billion. Add to this the cheques that pass through the banking system, NEFT payments, credit card and debit card payments, etc. Plus, if the current figures are expected to go up 80% with implementation of the proposal, imagine the revenues for the government, which can be pushed into infrastructure and development of the nation!

Arthkranti’s proposal is a well-researched one based on a scientific approach. It is designed to completely transform India’s socio-economic scenario. Moreover, the organisation has also presented a path to its implementation.

say above Rs 50, which was proposed in last decade of 20th century, when its value was different

- By GemAtlas Team