We hear a lot in media these days about many ideas to bring tax reforms. I had suggested that personal income tax be totally removed to make black money redundant. Ramdev, a famous Yoga teacher and also a very successful industrialist has come up with a new idea to make tax system more manageable and at the same time, as he claims, our government will make the same amount of revenue collection with less complications. He has a two point program to offer. In that, first is to abolish all 500 and 1000 rupee currency from circulations. Second point is that there will be a one point direct tax, called bank transaction tax, for one percent of the transaction value. By that tax if I withdraw 100 rupees from my account bank will deduct 1 rupee from my account and credit it to government account available in that bank. If I credit 100 rupees bank will again debit my account for 1 rupee and credit it to government account. That means, for each and every entry in my account I will be paying a transaction tax to government through my bank. As against this one point direct tax all other taxes will be abolished. He claims that this will make all commodities very cheap as multiple taxes those at present we pay to government when we purchase them will not remain. Apparently this appears very rosy but when we go into the other aspects involved in any tax system we may realize that there are a few ifs involved in it.

There are two things in that, some transactions are done legally and they will be earning revenue as per Ramdev tax. The others are illegal transactions and on that since it is done by cash Ramdev tax will not be possible. According to Ramdev only legitimate transactions we should consider for tax collection. He believes that his tax can collect one hundred and fifty thousand crore per annum. People fearing about the possibility that more transactions may become illegal only to avoid Ramdev tax. There is no way to stop that and presently Ramdev also has no answer that may satisfy the questioners At present, many transactions are taking place in the market done by cash payment. To that Ramdev says for that purpose he has the first point of suggestion, that is to abolish 500 and 1000 rupee notes. He believes that these illegal transactions are possible because we have these higher denomination currency notes. It will not be possible to make those fabulous payments by using 100 rupee notes and so he very innocently believes that such transactions will not happen at all!

Let me enlist such transaction so that my readers will see how impossible it is to avoid those illegal transactions.

All donations to political parties, all payments doctors collect from their patients, all payments advocates collect from their clients, all bribes paid to ministers to get things done, all bribes to police officers, bribes to government officers to get things done and such many payments are always made in cash. If Ramdev feels that by abolishing notes of higher denominations these businesses will seize to exist, he is in some dreamy world. Can anybody stop ministers from collecting their bribes? Can a political party live without donations? Now the question is in case government actually abolishes these notes how these payments will be made?

I began to ask my friends in the market who have to make such payments to get thing done. For a while they also had no answer but soon the solution emerged. One fellow told me that he will pay by dollar. Nobody can abolish dollar and by any standard dollar will be most welcome in place of ever devaluing rupee. More visualizations revealed the most horrible picture to me and my friends that soon rupee will be replaced by dollar in our market. Some Mall people admitted with a smile that they will be happy to accept dollar in place of rupee in their market!

I began to feel Ramdev’s idea may prove more helpful to black money holders and soon more money will become dollar in India, replacing rupee in all clandestine dealings. Hawala money need not to convert to rupee, it can remain as dollar and still useful in our market. Some came with a suggestion that use of dollar is not permitted and so such cases may be held but the point is, who cares for permissions here, when both parties are happy!

At the end of the arguments we are observing, I am still of the opinion that only removal of personal income tax altogether is the only feasible solution to our present tax problem. Most tax experts always agree that direct tax is not generally liked by people all over the world. And so our taxes should be always indirect ones. Again I remind my readers that income tax is causing black money and no other tax creates that money. To get rid of that we should remove personal income tax. As it is we see that total earning out of this tax is hardy about 4 to 5 % of total revenue collected. By abolishing it, we make all under hand earnings of government officers, doctors, advocates, judges, political parties valid; they can freely put their money without fear in banks and use it. Today all that money is in their cupboards lying unused! That money will come in the market freely releasing much pressure in the currency market because of blockades. If that is made possible there will be more business earning revenue by additional sales tax, central sales tax, customs, octroi, excise and many other taxes’ earnings will enhance considerably and that will recover all loss due to removal of personal income tax and more may be recovered. We have now professional tax; some experts argue that this amounts to double taxation as payer of professional tax has to pay income tax also on the same money! All these hassles will be cleared.

You may contact me on my Email ID given below,

ashokkothare@gmail.com

I invite you to visit my other blogs if you are interested in stories,

Ashok Kothare’s Blog

You may visit, Ideas and tips on any subject for intelligent discussions.

I recon, for philosophical discussions.