Rejoinder to "If every bank transaction were to demand a tax"-PART I

Today's Indian Express carried this article in nice easy-to-read FAQ form titled "If every bank transaction were to demand a tax" . Pity however is that the objections to proposal of replacing all other taxes except customs duties with  BTT  are not informed objections. They are in the category of "its trash because I tell you so". I shall now deal with the objections raised one by one

Objection 1-"Any tax should be on income or production in an economy. BTT is on neither......."

My Response: Who says so?  Law? Constitution of India? As far as Constitution goes, it doesnt say tax should be on income or production Economists? Do economists realise the amount of litigation that takes place on what falls within the scope of the term "income"? So, you have a  tax base which is prone to dispute and litigation. Further, you have in income-tax a tax which is prone to evasion. Its said to advance social justice. But it really is a reverse Robinhood tax- rich are able to evade or avoid it by paying top notch tax lawyers. Burden falls on smaller mortals who  dont have the ability to do so. Taxes on production-excise, sales tax, VAT, GST are not really evasion-prone either. They too have litigation-prone tax bases. The rates of these indirect taxes are in double digits rates and fuel inflation for common man- petrol/diesel prices are very high because of these taxes. Further, all the taxes on income or production are papered taxes or declaratory taxes...involving lot of paperwork and hassles. In fact, paperwork and hassles including facing biased Assessing Officers who proceed on assumption that taxpayer is dishonest contribute more to tax non-compliances/evasion. Its all these hassles which bother taxpayers more than the tax itself. Whatever the tax should be on, it shouldnot be on time, energy and honesty of an individual-This is where taxes on income and production have been spectacular failure. Economists with their doctrinaire approach to taxation have been spectacular failures in giving us a DREAM TAX....a tax which (i) is evasion-proof (ii) with a large litigation-proof tax base (iii)requiring minimum bureaucracy to collect (iv) costs less to collect (v)collected at source---at starting point (vi)miniscule tax rates to discourage evasion (vii)can give real-time credit of tax collected to Government.

BTT replacing all taxes is a thought born from this desire for a Dream Tax System which replaces multiple high rate taxes with lot of paperwork and hassles and which require huge bureaucracy and cost of collection and which have litigation-prone tax base with ONE SINGLE miniscule rate tax with wide litigation-proof tax base which is evasion-proof and easy to collect and hassle-free with minimum paper-work-Banking Transaction Tax satisfies all the requisites of a dream tax. Whats more the BTT with uniform rate will do on economic plane to India what Sardar Patel did on political plane-economic unification-Indian common market!!!!

Objection 2-BTT ...simply taxes movement of cash within the same recipient .So it penalises  movement of money and consequently impacts the efficiency of economy
A miniscule rate BTT said to be 2% (in my opinion it should be in the range of 0.1% to 0.5%) is said to possess all these evils. Current High rate taxes in double digits dont have these evils? Current taxes with huge paperwork, litigation, facing assessing officers & bureaucracy, corruption (not to mention) dont impact efficiency? Inter-state trade distortions due to differing rates of VAT dont penalise movement of money?''

Objection3-Volume of bank deposits in India is 70,60,182 crores and will require a 35% tax to raise current level of tax revenue of Centre & States combined

Who says it will tax only credits/deposits and not debits? Secondly even 35% tax is better-one tax without all hassles of paperwork and multiple taxes at present adding up to more than 35%. But the objection misses three  vital points---(i)There is currently a huge black money parallel economy due to current  multiple hassling high rate taxes. All this money will flow into banking system ...thus bank deposits will be several times the current level---Cash handling is risky and a proper tax regime will dissuade people from cash transactions and use banking system (ii)India will be a virtual tax haven ---bringing in huge foreign inflows through banking system. This will also increase bank transactions several times current level (iii) Tax Bureaucracy will be down-sized saving Government expenditure...instead of scrutinising millions of tax returns, scrutinise tax returns of only a few banks (iv)More disposable incomes in people's hand generating more jobs, more banking transactions etc. So, India will go into a virtuous circle mode

.........TO be CONTD IN PART II