The Government of India has been undertaking tax reforms on continuous basis aimed at increasing the tax base of both direct and indirect taxes, reduction in tax evasion and a resultant increase in the revenues of both state and central governments. The Central government has greater revenue raising powers in India, keeping in view considerations such as administrative efficiency in collecting taxes with a nationwide base. However, expenditure decentralization gives freedom to states to spend according to state specific needs given the huge diversity in preferences of citizens in different states and in the levels of their economic and social development.
The Covid-19 Pandemic was a highly chaotic and unusual fusion of a deadly disease with an economic calamity. Its escalating growth has seen it become a global phenomenon in a very, very short period. It was an unparalleled macro-economic supply and demand shock with great uncertainty in magnitude and duration. India had to pass through extremely tough times in combating the Covid-19. Our Honorable Prime Minister Shri. Narendra Modi has talked of how the COVID-19 Pandemic situation can be used as an opportunity to change things for the benefit of the poor and humankind and one theme that he repeatedly emphasizes is the need for and use of increased digitization. As he so very succinctly argues, one thing becomes clear – COVID-19 has given us a rare opportunity to revolutionize our way of life, especially using digitization and for the larger benefit of all humankind.
Our country is moving ahead with an ambitious aim of making our nation a Five Trillion Dollar Economy. Even though our country has a robust economic base, we are facing a huge debt burden, and equally disturbing Interest Payments. We have to borrow heavily every year for balancing our resources and payments. Substantial Increase in our tax revenue should be able to solve our problems. Our unemployment rates are also very high at 7% among un-skilled workers and 19% among citizens with higher education.
Let us now focus on the Tax Evasion Details with respect to the Income Tax, which is a main source of Direct Tax to the Government of India:
“Only 1 per cent of the Indian population pays income tax and declares earnings above the non-taxable income. Only 5.78 crore income tax returns were filed by individual taxpayers for the financial year 2018-19 till February 2020. Out of this, only 1.46 crore individual taxpayers filed returns declaring income above 5 lakh” said Anurag Singh Thakur, MoS, Ministry of Finance, in reply to a question in the Lok Sabha. Individual taxpayers with income up to 5 lakh are not required to pay any income tax from Assessment Year 2020-21 onwards. Tax evasion is at the core of the low tax base in our country. The government said that it has taken several steps such as searches and seizures, surveys, inquiries, assessment of income, levy of taxes, penalties, and filing of prosecution complaints in criminal courts, for the timely detection of tax evasion. It added with the increase in electronic form of information being available, such as Computer Assisted Scrutiny Selection (CASS); Non-filers Monitoring System (NMS); and Income Tax Business Application (ITBA), the Income Tax Department has developed a wide range of non–intrusive methods for detecting tax evasion. Mandatory quoting of PAN for various cash transactions, restrictions on cash transaction of 2 lakh or more; levy of TDS at 2 per cent on the amount of cash withdrawal by a person exceeding 1 crore from one or more accounts; and prohibiting taxpayers from accepting loans or deposits of more than 20,000 in cash are the other steps that the government has placed to curb tax evasion. However, despite the efforts, the number of cases of tax evasion is at elevated levels.
Let us now turn to the Tax Evasion Details of the Goods and Services Tax, which is an important source of Indirect Tax to the Government of India:
|
YEAR |
No. OF CASES | DETECTED
(Rupees Crore) |
RECOVERED
(Rupees Crore) |
| 2016-17 | 10,212 | 23,618.52 | 6,107.88 |
| 2017-18 | 6,815 | 32,204.49 | 4,579.94 |
| 2018-19 | 8,917 | 48,555.06 | 13,907.83 |
| 2019-20 | 10,657 | 40,853.27 | 18,464.00 |
We will now focus on some of the recent economic data published by the Government of India and the Reserve Bank of India. The Budget Document Published by the Government of India, for FY 2022-2023, has declared the following in Page 1 titled Abstract of Receipts:
| FINANCIAL YEAR | NET TAX REVENUE
(RUPEES CRORES) |
GOI BORROWINGS
(RUPEES CRORES) |
| 2020-2021 | 14,26,287.08 | 18,83,104.87 |
| 2021-2022 | 17,65,144.65 | 14,16,901.62 |
| 2022-2023* | 19,34,770.66 | 17,39,735.21 |
*ESTIMATE
Our net tax revenue for FY 2020-2021 was 14,26,287.08 Crores, and Government of India had to borrow 18,83,104.87 Crores, during the year to bridge the gap between revenue generation and payments, which was 132% of our net tax revenue.
For FY 2021-2022, the year in which we had the second wave of Covid-19 Pandemic, the Revised Estimates of our net tax revenue is 17,65,144.65 Crores, and Government of India had to borrow 14,16,901.62 Crores, which is 80% of our net tax revenue.
For the curent FY 2022-2023, Government of India Budget Estimates a net Tax Revenue of 19,34,770.66 Crores and an estimated 17,39,735.21 Crores of fresh debt, which is 89% of our net tax revenue.
The Government of India has accumulated a huge debt of 135,87,893.16 Crores, as on 31ST March 2022. The total accumulated debts of the Government of India will be 152,17,910.29 Crores on 31ST March 2023.
The annual Interest Payments for servicing of our debts, is also very disturbing. According to the Government of India Expenses Budget for FY 2022-2023.
| FINANCIAL YEAR | INTEREST PAYMENTS
(RUPEES CRORES) |
| 2020-2021 | 6,79,868.58 |
| 2021-2022 | 8,13,791.00 |
| 2022-2023* | 9,40,651.02 |
*ESTIMATE
Thus the problems in our economy are multi- dimensional and require managing revenue deficit, accumulating debt, debt servicing, lower tax base and non-compliance of tax laws by a section of our population. We should think of methods to resolve these issues by moving away from the existing complex multi-layer tax system. A tax system that is simple, cost effective and transparent, with lower transaction costs and greater ease of operation for the government and the taxpayer is the need of the hour. Tax laws need to be simple and easy to understand for the common citizen. Wherever and whenever possible, positive reinforcement rather than the threat of punitive action must be used to influence attitudes and bring about long lasting behavioral changes. A transparent and simple tax system can go a long way in helping people negotiate their way through it. Taxation should neither diminish the drive for enterprise nor should it result in huge inequities due to the hoarding of money by a select few. An unduly high tax rate will be detrimental to the economy, because of the possibility of tax evasion leading to creation and accumulation of un-accounted wealth, subsequently reducing consumption and enterprise. That is why having a transparent and forward looking tax system is critical for any economy.
Our Recommendations are aimed at a new tax regime that will :
- Rationalize the direct and indirect tax regime and enhance revenue generation for the government.
- Broad-base the tax net and reduce the tax burden on citizens.
- Reduce tax evasion and improve tax compliance.
- Stop black money generation and eliminate un-accounted money from our economy.
- Reduce corruption and improve efficiency and accountability in our Tax Collection Methodology.
- Improve the productivity and efficiency of our economy by simplifying tax and eliminating complex procedures.
Our Tax Reform Proposals are :
- Imposition of a 3% Banking Transaction Tax (BTT), on all transactions executed through NEFT, RTGS, Mobile Banking, Unified Payments Interface or by any other method of money transaction, deducting the tax amount before crediting the beneficiary account.
- Government of India will abolish Corporation Tax, Taxes on Income, Union Excise Duty, Service Tax, Wealth Tax, Goods and Services Tax, Taxes on Union Territories, Securities Transaction Tax, Capital Gains Tax and all Cess and Surcharges, before implementing 3%
- Customs Duty, Import Duty and all other taxes concerning Import or Export Trade will continue as before.
- All cash transactions by individuals or entities exceeding 2,000/- should be declared as illegal and such illegal transactions should be made punishable with rigorous imprisonment and heavy penalty.
- BTT Ombudsman and BTT Enforcement Wing should be authorized to confiscate cash / goods / property purchased through cash payment.
- Reserve Bank of India should impose restrictions on cash withdrawals from bank accounts to encourage transactions through the banking system / UPI / Cards.
- BTT is based on transfer of money by any individual or entity to another bank account, irrespective of the Value of Goods or Value of Services associated with the transaction.
- Bank to Bank transactions, Govt. transactions and own account transactions will be exempted from BTT.
- Since there will be substantial increase in BTT Revenue, The Formula for Sharing Revenue can be : GOI 65%, States and Union Territories 25%, Local Governments 25%, BTT Enforcement Wing 3%, Banking System 0.75%.
- Human Intervention and Interpretation of tax, which leads to corruption, will be eliminated with the usage of Artificial Intelligence and other non–intrusive methods for detecting tax evasion such as Computer Assisted Scrutiny Selection, Non-filers Monitoring System, and Income Tax Business Application, by any account holder, which will be monitored by BTT Enforcement Wing.
- Reserve Bank of India will withdraw higher denomination currencies of 2000, 500, 200 from circulation gradually and in a phased manner, to discourage the use of cash for transactions and encourage the use of banking system for transactions.
- Since most of the illegal trades like Hawala Transactions, Money Laundering, Narcotics Trade, and many more Grey Area Business Deals are done in cash, implementation of BTT will be a big blow to the mafia involved in those activities.
- Through a good public awareness campaign the common man will understand, accept and overwhelmingly support BTT, appreciating the efforts of GOI, with a record breaking compliance for the tax reform.
- Government of India can impose a special duty or tax on Gambling, Entertainment, Alcoholic Beverages, Tobacco, Cigarettes, Crypto and any other commodity or service that needs to be discouraged.
- Government of India should bring Petroleum Products like Petrol, Diesel and Aviation Fuel out of the tax structure of the State Governments and Union Territories.
- Existing employees of GST and of the Central Board of Direct Taxes and the Central Board of Indirect Taxes will be trained to function in the BTT Ombudsman and BTT Enforcement Wing to penalize those who evade BTT.
- BTT is a Transparent, Automated, Affordable, Simple, Pragmatic, Progressive Tax System that will be executed with Zero Defect.
- We will now analyze the above proposals and try to clear the doubts, based on The Reserve Bank of India Database for NEFT, RTGS and Mobile Banking Transactions by Private Entities during FY 2021-2022 :
RBI DATABASE APRIL 2021 – MARCH 2022
ALL BANKS CUSTOMER TRANSACTIONS APRIL 2021
NEFT VALUE 20,46,234.6 CRORES
RTGS VALUE 75,55,042.41 CRORES
MOBILE BANKING VALUE 10,06,256 CRORES
TOTAL VALUE 1,06,07,533.01 CRORES
ALL BANKS CUSTOMER TRANSACTIONS MAY 2021
NEFT VALUE 18,19,459.0 CRORES
RTGS VALUE 72,11,162.33 CRORES
MOBILE BANKING VALUE 8,98,224 CRORES
TOTAL VALUE 99,28,845.33 CRORES
ALL BANKS CUSTOMER TRANSACTIONS JUNE 2021
NEFT VALUE 20,97,771.1 CRORES
RTGS VALUE 88,87,545.80 CRORES
MOBILE BANKING VALUE 10,33,735 CRORES
TOTAL VALUE 1,20,19,051.9 CRORES
ALL BANKS CUSTOMER TRANSACTIONS JULY 2021
NEFT VALUE 22,04,302.8 CRORES
RTGS VALUE 92,88,983.57 CRORES
MOBILE BANKING VALUE 11,49,340 CRORES
TOTAL VALUE 1,26,42,626.37 CRORES
ALL BANKS CUSTOMER TRANSACTIONS AUGUST 2021
NEFT VALUE 22,09,817.9 CRORES
RTGS VALUE 89,36,185.69 CRORES
MOBILE BANKING VALUE 11,36,503 CRORES
TOTAL VALUE 1,22,82,506.59 CRORES
ALL BANKS CUSTOMER TRANSACTIONS SEPTEMBER 2021
NEFT VALUE 24,19,688.2 CRORES
RTGS VALUE 98,38,857.98 CRORES
MOBILE BANKING VALUE 11,78,882 CRORES
TOTAL VALUE 1,34,37,428.18 CRORES
ALL BANKS CUSTOMER TRANSACTIONS OCTOBER 2021
NEFT VALUE 24,76,396.6 CRORES
RTGS VALUE 89,56,918.27 CRORES
MOBILE BANKING VALUE 13,44,959 CRORES
TOTAL VALUE 1,27,78,273.87 CRORES
ALL BANKS CUSTOMER TRANSACTIONS NOVEMBER 2021
NEFT VALUE 23,14,490.4 CRORES
RTGS VALUE 86,31,202.61 CRORES
MOBILE BANKING VALUE 13,24,008 CRORES
TOTAL VALUE 1,22,69,701.01 CRORES
ALL BANKS CUSTOMER TRANSACTIONS DECEMBER 2021
NEFT VALUE 27,24,980.1 CRORES
RTGS VALUE 1,14,18,232.57 CRORES
MOBILE BANKING VALUE 14,33,961 CRORES
TOTAL VALUE 1,55,77,173.67 CRORES
ALL BANKS CUSTOMER TRANSACTIONS JANUARY 2022
NEFT VALUE 24,42,685.8 CRORES
RTGS VALUE 92,85,159.48 CRORES
MOBILE BANKING VALUE 14,22,872 CRORES
TOTAL VALUE 1,31,50,717.28 CRORES
ALL BANKS CUSTOMER TRANSACTIONS FEBRUARY 2022
NEFT VALUE 24,770.59 CRORES
RTGS VALUE 92,77,355.75 CRORES
MOBILE BANKING VALUE 13,95,093 CRORES
TOTAL VALUE 1,06,97,219.34 CRORES
ALL BANKS CUSTOMER TRANSACTIONS MARCH 2022
NEFT VALUE 34,92,578.2 CRORES
RTGS VALUE 1,30,69,668.93 CRORES
MOBILE BANKING VALUE 16,52,795.23 CRORES
INTERNET BANKING VALUE 88,31,267.8345 CRORES
TOTAL VALUE 2,70,46,310.20 CRORES
MONTHLY REVENUE @3% FOR 12 MONTHS OF 2021-2022
APRIL 2021 3,18,225.9903 CRORES
MAY 2021 2,97,865.3599 CRORES
JUNE 2021 3,60,571.557 CRORES
JULY 2021 3,79,278.7911 CRORES
AUGUST 2021 3,68,475.1977 CRORES
SEPTEMBER 2021 4,03,122.8454 CRORES
OCTOBER 2021 3,83,348.2161 CRORES
NOVEMBER 2021 3,68,091.0303 CRORES
December 2021 4,67,315.2101 CRORES
JANUARY 2022 3,94,521.5184 CRORES
FEBRUARY 2022 3,20,916.5802 CRORES
MARCH 2022 8,11,389.3058 CRORES
TOTAL REVENUE FOR 12 MONTHS 48,73,121.6023 CRORES
- THE TOTAL REVENUE COLLECTION FOR 2021-2022 COULD HAVE BEEN 48,73,121.60 CRORES, INSTEAD OF 25,16,059.27 CRORES, WHICH IS68% MORE THAN THE REVISED BUDGET ESTIMATES FOR 2021-2022.
- ACCORDING TO THE GOVERNMENT OF INDIA REVISED ESTIMATES FOR FY 2021-2022. GROSS TAX REVENUE OF 25,16,059.27 CRORES, WHICH IS INCLUSIVE OF : CORPORATION TAX 6,35,000 CRORES, TAXES ON INCOME 6,15,000 CRORES, CUSTOMS DUTY 1,89,000 CRORES, UNION EXCISE DUTY 3,94,000 CRORES, SERVICE TAX 2,000 CRORES, GOODS AND SERVICES TAX 6,75,000 CRORES, TAXES OF UNION TERRITORIES 7,059.27
- APPLYING THE FORMULA FOR SHARING THE BTT REVENUE, GOVERNMENT OF INDIA IS LIKELY TO GET 65%, THAT IS 31,67,529.04 CRORES, STATE GOVERNMENTS, UNION TERRITORIES WILL GET 25%, THAT IS 12,18,280.40 CRORES, LOCAL GOVERNMENTS WILL GET 25%, THAT IS 3,04,570.10 CRORES, BTT OMBUDSMAN AND BTT ENFORCEMENT WING WOULD GET 3%, THAT IS 1,46,193.65 CRORES, AND THE BANKING SYSTEM WOULD GET 0.75%, THAT IS 36,548.41 CRORES.
- GOVERNMENT OF INDIA IS LIKELY TO GET 31,67,529.04 CRORES, INSTEAD OF 25,16,059.27 CRORES WHICH IS 90% MORE THAN THE PRESENT TAX COLLECTION.
- AFTER ALLOCATION OF FUNDS TO THE STATE GOVERNMENTS, UNION TERRITORIES, LOCAL GOVERNMENTS, BTT OMBUDSMAN AND BTT ENFORCEMENT WING AND THE BANKING SYSTEM, GOVERNMENT OF INDIA MIGHT HAVE HAD 31,67,529.04 CRORES LEFT FROM THE BTT IF WE ADD THE CUSTOMS DUTY OF 1,89,000 CRORES AND NON-TAX REVENUE OF 3,13,791.31 CRORES PLUS NON-DEBT CAPITAL RECEIPTS OF 99,975 CRORES TO THIS AMOUNT, GOVERNMENT OF INDIA MIGHT HAVE HAD 37,70,295.35 CRORES AVAILABLE FOR APPROPRIATION.
************
WE WILL TRY TO PROVIDE ANSWERS TO SOME OF THE FREQUENTLY ASKED QUESTIONS LEVELLED AGAINST THE BANKING TRANSACTION TAX.
- Q : A SECTION OF OUR POPULATION IS WITHOUT BANK ACCOUNT AND WHAT IS THE FATE OF THOSE PEOPLE WHO ARE NOT PART OF THE BANKING SYSTEM?
A : 1. WE EXPECT AT LEAST ONE PERSON IN A FAMILY / HOUSEHOLD TO HAVE A BANK ACCOUNT. ACCORDING TO THE WORLD BANK’S GLOBAL FINANCIAL INCLUSION DATABASE OR GLOBAL FINDEX REPORT OF AUGUST 2017, 80% OF INDIAN ADULTS HAVE BANK ACCOUNT, WE EXPECT THAT NOW, IN MAY 2022 OUR BANKING PENETRATION SHOULD BE >95%.
- AS OF FEBRUARY 21, 2022, THE NUMBER OF BANK ACCOUNTS, OPENED UNDER THE GOVERNMENT’S FLAGSHIP FINANCIAL INCLUSION DRIVE, ‘PRADHAN MANTRI JAN DHAN YOJANA’, HAS REACHED 44.63 CRORES, AND DEPOSITS IN THE JAN DHAN YOJANA BANK ACCOUNTS TOTALLED 1,58,000 CRORES.
- TO UNDERSTAND THE PENETRATION AND USAGE OF DIGITAL FACILITIES FOR BANKING TRANSACTIONS BY THE COMMON PUBLIC OF OUR COUNTRY, WE PROVIDE THE VALUE OF MOBILE BANKING TRANSACTIONS DATA OF RBI, FOR THREE MONTHS PRECEDING MARCH 2022.
| DECEMBER 2021 | 14,33,961 CRORES |
| JANUARY 2022 | 14,22,872 CRORES |
| FEBRUARY 2022 | 13,95,093 CRORES |
- FROM THE ABOVE DATA IT IS EVIDENT, THAT ON AN AVERAGE, MOBILE BANKING TRANSACTIONS BY INDIANS ARE 47,243.62 CRORES PER DAY. THIS PHENOMENAL CHANGE IS POSSIBLE ONLY THROUGH DEEP PENETRATION OF BANKING FACILITIES INTO EVERY SEGMENT OF OUR POPULATION.
- Q : WHAT WILL HAPPEN TO THE EXISTING EMPLOYEES OF THE INCOME TAX, GST, EXCISE, CENTRAL BOARD OF DIRECT TAXES , CENTRAL BOARD OF INDIRECT TAXES?
A: BTT OMBUDSMAN SERVICES AND BTT ENFORCEMENT WING WILL BE ABLE TO ACCOMMODATE MOST OF THE 46,000 EMPLOYEES IN THE INCOME TAX DEPARTMENT, THE 20,000 GAZETTED OFFICERS, AND 54,000 NON-GAZETTED OFFICERS OF THE CENTRAL BOARD OF DIRECT AND INDIRECT TAXES, AFTER NECESSARY TRAINING AND ORIENTATION PROGRAMS. THOSE EMPLOYEES WHO COULD NOT BE ACCOMMODATED FOR THESE SERVICES WILL BE SHIFTED TO OTHER DEPARTMENTS, OR GIVEN VOLUNTARY RETIREMENT FROM SERVICE.
- Q : THE STOCK MARKETS, THE FOREX MARKETS, THE COMMODITY MARKETS, AND MANY BUSINESSES ARE OPERATING AT A LESS THAN 3% PROFIT MARGIN. HOW WILL THEY REACT TO THIS TAX REFORM?
A : TRADERS AT ALL THE EXCHANGES WILL HAVE TO PAY 3% BANKING TRANSACTION TAX ONLY ON THE NET AMOUNT PAYABLE AFTER ALL TRADES ARE EXECUTED DURING A PARTICULAR TRADING CYCLE AND NOT ON EVERY TRADE EXECUTED DURING THAT TRADING CYCLE. BUSINESSES WHICH OPERATE AT A LOWER PROFIT SHOULD UNDERSTAND THAT WHEN THE 3% BANKING TRANSACTION TAX IS IMPLEMENTED, NO INDIVIDUAL OR ENTITY HAS TO PAY THE MULTI LAYER TAXES THAT CONSISTED OF GOODS AND SERVICES TAX, INCOME TAX, SECURITIES TRANSACTION TAX AND THE CAPITAL GAINS TAX AND ADDITIONAL CESS AND SURCHARGES ON THESE TAXES.
- Q : WHAT WILL BE THE IMPACT OF 3% BTT ON THE PRICES OF COMMODITIES AND SERVICES?
A : ALL COMMODITIES AND SERVICES WILL BE CHEAPER WHEN BANKING TRANSACTION TAX IS IMPLEMENTED BECAUSE OF THE ABOLITION GST, EXCISE DUTY AND MANY OTHER TAXES. SINCE DIESEL, PETROL AND AVIATION FUEL WILL ALSO BE OUT OF THE PERVIEW OF STATE GOVERNMENT TAXES, TRANSPORTATION COST OF COMMODITIES WILL BE CONSIDERABLY CHEAPER.
- Q : WHAT WILL BE IMPACT OF 3% BTT ON STATE GOVERNMENTS, UNION TERRITORIES AND LOCAL GOVERNMENTS?
A : 1. STATE GOVERNMENTS AND UNION TERRITORIES WILL CONTINUE TO TAX ALL PRODUCTS AND SERVICES IN THEIR DOMAIN EXCEPT PETROL, DIESEL AND AVIATION FUEL.
- LOCAL GOVERNMENTS WILL BE GETTING SUBSTANTIAL REVENUE FROM THEIR SHARE OF BTT FOR PROVIDING THE SERVICES WHICH ARE LISTED IN THEIR DOMAIN. SINCE THE EFFICIENCY OF THE LOCAL GOVERNMENTS IN TAX COLLECTION IS VERY POOR, GOVERNMENT OF INDIA MAY ASK THE LOCAL GOVERNMENTS TO ABOLISH MANY OF THOSE TAXES AND SUGGEST SOME ALTERNATIVE METHOD OF REGISTERING INDIVIDUALS / ENTITIES FOR SUCH SERVICES.
- Q : WHAT WILL BE THE IMPACT OF 3% BTT ON JEWELLARY AND BULLION MARKETS?
A : AFTER ABOLITION OF 3% GST, AND INTRODUCTION OF 3% BTT, TECHNICALLY THERE WILL NOT BE ANY NEGATIVE OR POSITIVE IMPACT ON THE PRECIOUS METALS AND STONES MARKET. BUT, SINCE THE INCOME TAX IS ALSO WITHDRAWN, SAVINGS BY THE COMMON MAN WILL INCREASE AND PEOPLE WILL HAVE MORE MONEY AVAILABLE FOR INVESTMENTS. THE JEWELLARY INDUSTRY IS BOUND TO BE BENEFITED BY THIS REFORM BECAUSE OF THE WITHDRAWAL OF MULTI-LAYER TAXATION SYSTEM.
- Q : MANY COUNTRIES WHICH HAVE IMPLEMENTED THE BANKING TRANSACTION TAX, HAVE A VERY LOW RATE OF BTT. THE 3% RATE, THAT IS PROPOSED FOR BTT IN INDIA, IS VERY HIGH, AND MAY NOT YIELD THE DESIRED REVENUE, COMPARED TO MANY OTHER NATIONS WHICH HAVE IMPLEMENTED THE BTT?
A : 1. SINCE OUR COUNTRY HAS A HUGE ACCUMULATED DEBT BURDEN OF MORE THAN 135,87,893.16 CRORES WHICH WILL ZOOM TO 152,17,910.29 CRORES, AND AN EQUALLY BIG INTEREST PAYMENTS OF 8,13,791 CRORES FOR FY 2021-2022, AND AN ESTIMATED 9,40,651.02 CRORES FOR FY 2022-2023, 3% RATE OF BTT CAN BE MADE THE UPPER LIMIT FOR BTT, FOR A FEW YEARS. WITH THE CASH TRANSACTION RESTRICTIONS AND OTHER MEASURES OF RESERVE BANK OF INDIA IN PLACE, @ 3%, WE EXPECT THE ANNUAL BTT COLLECTIONS TO BE AROUND 150 LAKH CRORES, BY THE END OF MARCH 2024. AT THAT POINT OF TIME, GOVERNMENT OF INDIA MAY CONSIDER REDUCING THE RATE OF BTT FROM 3% TO A LOWER RATE, TO REDUCE THE BURDEN OF TAXPAYERS.
- Q : WHAT WILL BE THE IMPACT OF BTT ON TAX PROFESSIONALS AND PRACTITIONERS?
A : FILING OF GST FORMS AND MANDATORY FILING OF INCOME TAX BY INDIVIDUALS AND SMALL BUSINESSES WILL CEASE TO EXIST. CHARTERED ACCOUNTANTS AND TAX CONSULTANTS WILL HAVE MORE TIME TO FOCUS ON IMPROVING THE QUALITY OF GOODS AND SERVICES OF THEIR CLIENTS. TAX MANAGEMENT UNDER A UNIFIED 3% BTT REGIME WILL BE A GAME CHANGER, BENEFITING BOTH THE CLIENTS AND THE TAX MANAGERS, SINCE, INCOME TAX, GST, EXCISE DUTY, SECURITIES TRANSACTION TAX, CAPITAL GAINS TAX AND WEALTH TAX, ARE ABOLISHED.
- Q : DOES THE INTRODUCTION OF 3% BTT, INFRINGE ON THE RIGHTS OF THE STATE GOVERNMENTS AND UNION TERRITORIES?
A : 1. THERE WILL BE NO INFRINGEMENT ON THE RIGHTS OF THE STATE GOVERNMENTS AND UNION TERRITORIES. THEY HAVE TO WITHDRAW ALL THEIR TAXES ONLY ON DIESEL, PETROL, AVIATION FUEL AND OTHER PETROLEUM PRODUCTS. THERE WILL BE SUBSTANTIAL INCREASE IN THEIR SHARE OF FUNDS COLLECTED THROUGH 3% BTT, WHICH WILL COMPENSATE FOR THE LOSS OF REVENUE.
- ALL OTHER PRODUCTS AND SERVICES THAT FALL IN THE DOMAIN OF THE STATE GOVERNMENTS AND UNION TERRITORIES WILL CONTINUE TO BE IN THE CONTROL OF THE STATES.
- WHEN RBI IMPOSES CASH WITHDRAWAL RESTRICTIONS AND REMOVAL OF HIGHER DENOMINATION CURRENCY NOTES FROM CIRCULATION, GRADUALLY, IN A PHASED MANNER WITHOUT CREATING PANIC AMONG THE CITIZENS, THE REVENUE GENERATION BY 3% BTT WILL INCREASE EXPONENTIALLY. GOVERNMENT OF INDIA MAY CONSIDER FURTHER REFORMS INCLUDING REDUCTION IN THE RATE OF BANKING TRANSACTION TAX.
- Q : WHAT WILL BE THE IMPACT OF 3% BTT ON THE MEDIUM AND SMALL ENTERPRISES AND STREET VENDORS?
A : CASH SALES AND CASH TRANSACTIONS ARE PERMITTED UP TO THE LIMIT PRESCRIBED BY THE RESERVE BANK OF INDIA. ANY ABNORMAL CASH TRANSACTION BY INDIVIDUALS, TRADERS AND BUSINESS ESTABLISHMENTS WILL BE CONSTANTLY MONITORED BY THE BTT ENFORCEMENT WING AND INDIVIDUALS AND ENTITIES WHICH VIOLATE RBI RULES, WILL BE PENALISED.
- Q : WHAT WILL BE THE EFFECT OF 3% BANKING TRANSACTION TAX ON SALARIED CLASS AND WHAT WILL BE THE RESPONSIBILITY OF THE EMPLOYERS?
- A : WHEN MONEY IS TRANSFERRED FROM ONE ACCOUNT TO ANOTHER, 3% BTT WILL BE AUTOMATICALLY DEDUCTED. EMPLOYER HAS TO MAKE PROVISIONS FOR 3% BTT, AND EXECUTE THE SAME WHILE TRANSFERRING SALARY OR ANY OTHER BENEFITS TO AN EMPLOYEE.
- Q : THE GOVERNMENT CAN NOT TAX THE SAME RATE FOR A BUYER OF A MERCEDES BENZ CAR AND THE BUYER OF A MATCH BOX. THERE SHOULD BE DIFFERENT RATES OF TAXATION FOR DIFFERENT SECTIONS AND DIFFERENT FINANCIAL SEGMENTS OF THE SOCIETY. IS IT POSSIBLE TO PROVIDE BENEFITS IN BTT FOR DIFFERENT FINANCIAL SEGMENTS OF OUR SOCIETY?
- A : 1. AS ALREADY STATED, WE DO NOT CALCULATE BTT BASED ON THE VALUE OF ANY COMMODITY / PRODUCT / SERVICE. SO THERE CAN BE NO PREFERENTIAL TREATMENT FOR ANYBODY.
- GOVERNMENT OF INDIA IS ALREADY GIVING BENEFITS TO SOCIAL AND ECONOMICALLY WEAKER SECTIONS THROUGH DIRECT BENEFIT TRANSFER.
- THERE WILL BE NO TAX ON ALL CASH TRANSACTIONS UP TO 2,000, WHICH IS THE CONCESSION GIVEN TO THE BPL INCOME GROUP.
- 3% BTT AIMS AT AMALGAMATING VARIOUS TAXES AND BROAD-BASING THE PRESENT TAX SYSTEM TO ARRIVE AT A PRAGMATIC SYSTEM WHICH WILL DEFINITELY HAVE NEAR 99% COMPLIANCE BY THE CITIZENS.
- BY BROAD-BASING THE TAX NET, WE WILL DEFINITELY BE ABLE TO GET MORE REVENUE WHICH WILL RESCUE OUR COUNTRY FROM THE HUGE DEBT BURDEN AND INCREASED FUND ALLOCATION TO PROJECTS.
- IF THE GOVERNMENT OF INDIA FEELS THAT THERE CAN NOT BE A SIGLE TAX STRUCTURE FOR EVERYBODY, GOI CAN IMPOSE A SPECIAL TAX ON GOODS AND SERVICES ASSOCIATED WITH GAMBLING, LIQUOR, ENTERTAINMENT, LOTTERIES, CIGARETTES, TOBOCCO, LUXURY CARS, HIGH NET-WORTH INDIVIDUALS ETC.
- Q : 1. THE BTT IS NOT NEUTRAL. THE EFFECTIVE TAX RATE VARIES ACROSS SECTORS.
- A : THE CONCEPT OF NEUTRALITY IS THE UNDERPINNING IDEA OF THE CANONICAL GOAL OF TAX REFORM. ACHIEVING A BROADER BASE WITH LOWER RATES. THE TAX SYSTEM SHOULD STRIVE TO BE NEUTRAL SO THAT DECISIONS ARE MADE ON THEIR ECONOMIC MERITS AND NOT FOR TAX REASONS. IN SOME CASES, NEUTRALITY IS IMPOSSIBLE AND POLICYMAKERS HAVE TO ACCEPT A CERTAIN LEVEL OF DISTORTION TO BEHAVIOR AS INEVITABLE. IN OTHER CASES, NEUTRALITY MAY BE UNDESIRABLE IF POLICYMAKERS INTEND TO PROMOTE SPECIFIC GOALS LIKE THE PROVISION OF HEALTH INSURANCE OR CONTRIBUTIONS TO CHARITY. EXAMINING WAYS THAT THE TAX SYSTEM APPROXIMATES OR DEPARTS FROM NEUTRALITY CAN BE A HELPFUL LENS FOR THINKING ABOUT A RANGE OF TAX POLICY AND ECONOMIC PROBLEMS. TAX NEUTRALITY IS A WIDELY ACCEPTED CONCEPT IN PRINCIPLE. IN PRACTICE, HOWEVER, TRADEOFFS BETWEEN DIFFERENT CONCEPTS OF NEUTRALITY AND DIFFERENT GOALS CAN BE DIFFICULT TO RESOLVE. BUT IN SEVERAL CASES THIS CONCEPT CAN PROVIDE A USEFUL WAY TO CUT THROUGH SOME OF THE DEBATES ABOUT TAX POLICY AND IDENTIFY A MORE ECONOMICALLY EFFICIENT WAY TO ORGANIZE THE TAX SYSTEM.
- Q : BTT CANNOT BE POSITIONED AS AN EFFICIENT TAX REGIME – IT IS A CASCADING TAX WHERE THE EFFECTIVE TAX RATE CAN BUILD UP FROM 2 PER CENT TO OVER 6 PER CENT, OR IF THE TAX RATE IS HIGHER AT 4 PER CENT, TO OVER 12 PER CENT. ALSO, THE BTT FAILS TO ACHIEVE THE EXTENT OF EQUITY IN THE CURRENT SYSTEM.
- A : 1. EFFICIENCY OCCURS WHEN WE CAN OBTAIN THE ULTIMATE SATISFACTION FROM A GIVEN AMOUNT OF RESOURCES. HENCE, ECONOMIC EFFICIENCY FOR OUR ECONOMY IS ACHIEVED WHEN WE CANNOT INCREASE OUR SATISFACTION OF WANTS AND NEEDS BY PRODUCING MORE OF ONE GOOD AND LESS OF ANOTHER. THERE ARE SEVERAL WAYS TO ALLOCATE RESOURCES IN ORDER TO MAKE A TAX CONSISTENT TO THE PRICIPLES OF JUSTICE AND FAIRNESS. THESE GOALS CAN BE ACHIEVED BY USING DIFFERENT TOOLS SUCH AS: THE ADMINITRATIVE AND BUREAUCRATIC PROCESS, THE POLITICAL DECISION MAKING PROCESS AND FINALLY IN BARGAINING SITUATIONS. ACCORDINGLY, DEFINING A TAX RULE AS “INEFFICIENT” CAN ONLY MEAN THAT IT IS DISTORTIVE. ECONOMICS THEREBY DEALS WITH THE QUESTION OF HOW TO USE RESOURCES IN THE MOST EFFICIENT WAY TO SATISFY THE CONSUMER INTERESTS IN THE BEST WAY. IT THEREBY NEEDS TO BE ASSESSED WHETHER A GOAL WHICH IS TO CONTRIBUTE TO A SYSTEM THAT IS NON-DISTORTIVE, AND BY THAT EFFICIENT, COULD ALSO MAKE THE SYSTEM ACCRUE TO THE NEUTRALITY PRINCIPLE, AND WHAT CRITERIA WOULD THEN NEED TO BE MET. NEUTRALITY THUS LEADS TO EFFICIENCY AND NON-DISTORTION.
- A : 2. THE CASCADING EFFECT OF GST AND THE CORPORATE INCOME TAX PLUS CESS AND SURCHARGES ON ANY COMPANY IS EVIDENT IN THE PRESENT MULTI-LAYER TAXATION SYSTEM. SECURITIES TRANSACTION TAX AND CAPITAL GAINS TAX DO HAVE A CASCADING EFFECT ON THE FINANCIALS OF ANY INDIVIDUAL OR BUSINESS ENTITY. THIS EXERCISE IS TO AMALGAMATE GST WITH CORPORATE TAX, INCOME TAX AND OTHER CENTRAL GOVERNMENT TAXES AND EXPAND THE TAX NET.
- A : 3. WHEN AN INDIVIDUAL OR ENTITY, TRANSFERS MONEY TO ANOTHER INDIVIDUAL OR ENTITY, 3% BTT IS DEDUCTED BEFORE THE AMOUNT IS CREDITED TO THE BENEFICIARY ACCOUNT. THE QUANTUM OF FUNDS REQUIRED FOR A PARTICULAR PERIOD IS DEPENDENT ON FACTORS LIKE PRICE AND VOLUME. THERE WILL A BTT WHILE BORROWING FUNDS AND THE NET AMOUNT FOR THE FINISHED PRODUCT WILL BE COLLECTED BEFORE DESPATCH. WHATEVER BE THE BUSINESS OF THE ENTITY, THE FREQUENCY OF TRANSFER OF FUNDS DOES NOT ALTER THE RATE OF BTT. SO THERE WILL NOT BE ANY CASCADING TAX EFFECT WHEN BTT IS IMPLEMENTED.
THE BANKING TRANSACTION TAX IS NOT JUST ONE OF THETAX REFORMS, BUT A GAME CHANGER TO THE INDIAN ECONOMY, WHICH WILL GO A LONG WAY IN COMBATING MONEY LAUNDERING ACTIVITIES, CONTAINING THE NARCOTICS TRADE, HAWALA TRANSACTIONS AND ALL THE GREY MARKET OPERATIONS.
THESE DATA PROVE THAT, THE GOVERNMENT OF INDIA CAN SWITCH TO 3% BANKING TRANSACTION TAX IMPLEMENTATION IMMEDIATELY FOR GETTING MORE REVENUE WITHOUT TAXING THE COMMON MAN AND ULTIMATELY BOOST THE ECONOMY OF THE NATION.
- by R. Varatharaajan.
- vrvaradarajan@yahoo.com
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