Saturday, June 7, 2014

Arthakranti Pratishthan: Could it be Possible for PM Narendra Modi to Consider its Revolutionary Ideas for Tax Reforms?

For long I was toying with the the idea of better alternatives to regressive and inefficient taxation laws coupled with many other financial loop holes that have made India a nation of shame regardless of her high potentials in various fronts. 

I had earlier shared two ideas that came to my mind in this context.

One was about bank ATMs of this country. ATMs are presently used as instruments that helps in perpetuating corruption while it could well be used to control corruption.

Then I wrote about my thoughts on the so-called transaction tax that could effectively replace the present income tax.

Yesterday my daughter from Delhi, shared me a long article on the efforts made by a Non Governmental Organization (NGO) formed by a group of professionals at Pune, named the Arthakranti Pratishthan which has been doing pioneering efforts to bring about radical changes in this context for the past few years.

This organization of professionally well informed intellectuals like Chartered Accountants, engineers, etc have done their independent analysis about the economic ills that plague India and has come out with a seemingly simple, but extremely effective proposal for the government of India to consider for implementation.

The original idea was proposed by one Mr.Arun Bokil who is one of the founder members of Arthakranti.

Here are some news that the media covered on this proposal in the recent past:

One news reported that while the Congress VP Rahul Gandhi rejected the idea, BJP leaders such as Mr Subramanya Swamy favored it. 
I have studied their proposal. I fully endorse it.

It is also reliably learnt that the new visionary PM of India-Narendra Modiji- has listened patiently to Mr Arum Bokil for about two hours to understand the concept and its finer details and is in favor of the idea.

Those who have not known about it I would suggest that they should have a look at this great 5-point proposal that is given in the website of Arthakranti.  Let us examine the pros and cons of these five suggestions:

The first step as suggested involves in removing all kinds of direct taxes in the country as it exists now. There are some 56 odd taxes in the country imposed by the central and state governments including income tax, excise, service tax, value added tax (VAT), etc. All these are to be scrapped, except perhaps the customs duties or import duties which might be required to work as an international trade balancing mechanism. When this is done all commodities and services in India would immediately become cheaper by 32% to 55%. All income tax payers would find their incomes rise by 5-30 % in an year. The government apparently would seem to loss some thing like Rs.16000 billion. But it is not the end of it. Let us see further.

The second step is introduction of what is known as the Transaction Tax (TT). A total of say, 2% would be deducted from any amount received in any bank account. If any one receives Rs.100 in his bank account, Rs 2 would be immediately deducted by the  bank and this in turn would be divided in some acceptable ratio to be remitted to the central government, state government, local government and say the bank concerned. Let us say 0.8% to the Central government, 0.6 % to the state government concerned, 0.4 % to the local government (municipality, city corporation etc) and 0.2 % to the bank concerned. If you get Rs 100000 per year as salary, you give 2% of it as your TT. That is Rs.2000/-. But you spend the money by giving it to your shop keepers and others for goods and services. So those who received the amount first from you also pay Rs.2000/- to the exchequer. If the same money change hand 6 times in an year this way, the government gets Rs 12000/- The more the transactions, the more the government gets. Presently, the total Banking transactions in India is to the tune of Rs.800000 billion. 2% of it is Rs16000 billion which is the same as the present gross tax collection or budget of the government of India. But this is just only a fraction of the total money transactions in India due to the existence of the parallel economy which transacts money outside the banking system. Again government can take steps to enhance more economic activities and money transactions which would give more money to its coffers as TT. It is so feels, it could either reduce or increase the TT percentage marginally as per requirement and situation.

Thus, TT in place of the existing taxes are not going to affect the government treasury in any way. Again prices of goods and services have drastically reduced which enhances the money transactions.

The third step proposed is the withdrawal of all high denomination currency notes from circulation. Our banks and ATMs will now give cash to any one in 5/10/20/50 rupee notes or coins only. 100/500/1000/5000 or higher denomination currencies would no more be valid tender. All people who get monthly salaries above say Rs 5000/- would get it through their bank accounts. People would not be allowed to carry cash not more than Rs.5000/- at a time. All transactions above the specified limit of say Rs.5000 would be through debit cards/cheques etc. If you buy even grocery worth more than Rs.5000 that has to be paid through your debit card. You only pay cash payments to your vegetable and fruit vendor. You may also pay cash to your local taxi driver, hair dresser, daily wager etc. Even the local wholesale vendor has to accept either cheque or debit/credit card. This way all cash hoarded as black money would either come to accounted money or vanish as useless. India's corruption avenues would dry up. There will not be any theft of cash from homes. Neither would there be kidnappings for ransom money. Even our political spending would now become properly accounted and the election commission would no more be able to catch huge cash in transit. Even for those who prefer to do adopt cash transactions would not be so easily able to do it because they have to carry big sacks and trunks to carry the lower denomination currency notes. This step would also enhance the banking transactions immediately.

The limited cash transactions that are legally allowed would not be in the purview of the TT.

The above mentioned steps are not difficult to implement if the central government is determined to do it. Of course those who are benefited by black money would naturally oppose it. 

But if you analyze it properly, the system would be of great benefit to one and all in the long run. It would make India a role model in the whole of this world. 

It would help the majority of below poverty population to come out of their poverty and illiteracy. People would gladly give TT as they no longer feel the pinch of government interference in their lives. Our businesses will flourish without the fear of the tax officials who are notorious for their whims in interpreting the tax laws to their advantage. 

The government no longer would need to have a large tax collection organization which eats half of the money collected for their own salaries and perks.

Tax return filing and the many fold problems the people face including the harassment out of it would all be things of the past. 

Government would get more time to think of development rather than tax collection and prosecutions. 

It is a great thing if it happens.

But if past experience is any indication, the so called tax mandarins are likely to oppose any such revolutionary ideas for obvious reasons. Such an idea would end their decades old grip over the system of administration in vogue. So all those officials and staff connected with the 'collector' system would vehemently oppose such a move to make things easier for every one. Besides, all those who have been taking benefits of tax evasion and generation of black monies would also oppose such moves.

It definitely needs the intervention of a strong political visionary who is strong enough to push the right things for the overall benefit of the nation. For many years we have been lacking such a leadership.

But now things seems to be no more like the past. I think our new PM is the only leader who could perhaps over come the obstacles to implement such great ideas.

4 comments:

  1. His name is Anil Bokil. Wrongly publicized on net as Arun.

    ReplyDelete
  2. Like u i too admire our PM Shri Narendra Modi. But i fail to understand that why his Gov. is not serious enough to implement this. They have failed to even get the GST passed in RS. I need to know from u if u have any idea of this.

    ReplyDelete
  3. It is the start of the implementation of the well researched scientific approach to completely transform the current Indian socio-economic scenario. An essential, courageous & well thought move by our PM.

    Madhava das

    ReplyDelete

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