New Delhi: It’s been a week since the demonetisation drive and the guessing game has begun about the government’s next move in what is being billed as a series of steps to rein in unaccounted money.
One of the theories doing the rounds is abolition of income tax. That may seem far-fetched, but a little known Pune-based organisation’s economic manifesto offers some clues.
The Arthakranti Prathisthan is a Pune-based Trust that has a set of proposals aimed at India’s ‘economic rejuvenation’, one of which – scrapping high value bank notes – has already been implemented by the BJP-led Central government.
A few other ideas mooted by the Trust figure in the Vision India 2025 document of BJP.
A trustee whom News18 spoke to confirmed that Anil Bokil, the founder of Arthakranti, had met Prime Minister Narendra Modi last year in a meeting that lasted 90 minutes where demonetisation was discussed.
Proposal No. 3 in a list of 5 items on the Trust’s website states that high denomination currency should be withdrawn from circulation.
However, it is the top proposal that is interesting.
It calls for an abolition of the existing tax system completely and its replacement with a flat tax on banking transactions.
The so-called Banking Transaction Tax (BTT) would replace all direct and indirect taxes in the country and would yield revenue greater than the current tax take and be less prone to corruption, according to its proponents.
At first glance, a proposal to abolish Income Tax may seem to be right out of the pages of the Libertarian Right. But the BJP has endorsed the idea in a document it released before the general elections called ‘Vision India 2025’. The proposal was a recommendation by the Arthakranti Prathisthan.
Party leaders like Subramanian Swamy have argued in the past that scrapping the income tax will boost up the economy. His argument is that abolition of Income Tax will increase savings rate and help economic growth.
One of the Arthakranti trustee Yamaji Malkar told News18 that the current system of taxation is the root of corruption and the solution. “A banking transaction tax would yield the nation about Rs 40 lakh crore, which is more than what the nation nets right now through the current system,” Malkar said.
A perusal of the budget document shows that the estimated revenue for 2016-17 is Rs. 13.77 lakh crore, out of which Rs. 10.54 lakh crore is tax revenue (direct and indirect) and Rs. 3.22 lakh crore is non-tax revenue (spectrum auction, coal auctions etc).
When asked which rate of BTT, or what percentage of the population would have to be covered by the banking system to yield Rs. 40 lakh crore, Malkar was vague.
The website mentions a hypothetical rate of 2%, but there are no hard numbers about how much this rate will yield. Malkar said that 50% of the population has access to banking and the government’s seriousness about expanding the network will determine the rest.
When asked if a flat rate of BTT was regressive Malkar said that indirect taxes at present were also regressive, and the system proposed would be an improvement.
However, not everyone is convinced.
Pronab Sen, the former Secretary of the Statistics Ministry, said that a banking transaction tax would merely push people to use cash for transactions, the exact opposite of what is needed to rein in unaccounted money. One of the proposals floated by Arthakranti seems to back this up.
It calls for no tax on cash transactions.
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