Bank transaction tax': Too good to be true?

For a tax-weary nation like India, the suggestion by Pune think tank Arthakranti Pratishthan of a banking transaction tax (BTT) of one to two per cent, that if implemented would make all other taxes unnecessary, sounds too good to be true. As they say, from the time you are born till you die you are subject to all kinds of taxes, so this BTT will eliminate the proposed GST, VAT, income-tax, excise duty, etc. There will still, however, be an import duty. The BTT, on amounts credited or deposited, is expected to net Rs 21 lakh crores, that would be shared by the Centre and states. Imagine a situation where hordes of tax evaders are a thing of the past, an endangered species, as everyone would have a bank account. Today, barely four per cent of India’s 1.2 billion populace file income-tax returns and just 13 million actually pay income-tax.

Around 54 per cent (17 million people) who filed returns last year had zero tax liabilities, studies show. Even in direct taxes, a mere 34 per cent pay this, while the rest pay indirect taxes. The latter affects the poor more than the rich as both categories pay the same amount of indirect tax. So if this is abolished, with the BTT in place, it will be a good thing. What is significant about this idea is that taxes will be very low as the government will make up its revenue in the volume of banking transactions. If implemented, it will be a huge tax reform and indeed a great idea. The sooner the Narendra Modi government accepts it, the better. There will have to be a lot of discussions before it can be implemented, else one may see the kind of chaos that erupted after the demonetisation of Rs 500 and Rs 1,000 notes, that by the way was proposed by the same think tank.

The intention was laudable, but the implementation rather ham-handed, even given the need to maintain secrecy. The fact that the implementation is now being tinkered with to ease the hardships of people only shows the haste with which it was announced. These hardships aren’t going to go away anytime soon. On the positive side the BTT move would take the people closer to being “cashless” in their transactions, though it may take longer for those who still don’t have bank accounts, specially in rural India, to be brought into the system. It will bring the so-called big farmers into the tax net as they don’t pay income-tax now. Whether this will curb black money or corruption remains to be seen as these people would still be keeping money under their mattresses or sending it abroad through the hawala route.