While some Bharatiya Janata Party leaders have already talked about such a proposal, its main proponent, Pune-based Arthkranti Pratisthan, today claimed that this system would actually help grow India's tax revenues nearly three times from about Rs 14 lakh crore currently to over Rs 40 lakh crore.
A senior Bharatiya Janata Party leader, however, said that it was one of the many proposals currently on table for preparation of the party's Vision-2025 document, and a final decision would be taken only after taking into accounts suggestions from various quarters on Arthkranti's proposals.
The party expects to take a final decision before the general elections, he said. First, the party's vision committee would take a call on this and the same would be thereafter sent to BJP's Parliamentary Committee for final decision, the leader said, while adding that the proposals are being studied currently.
The proposal has been submitted to BJP's Vision 2025 committee, which is headed by former party president Nitin Gadkari. This committee is working on reforms in five broad categories -- judiciary, education, police, administration and tax.
While making presentation before journalists on their proposals, representatives of Arthkranti claimed here that they have also made presentations before others including Arvind Kejriwal of Aam Aadmi Party, while they are also approaching IAS officers and industrialists.
They also said that Arthkranti has been in touch for about five years with Baba Ramdev, who also recently talked about such radical taxation proposals.
While admitting their proposals appear "radical" in nature, Arthkranti representatives said they are suggesting a corrective programme not just in taxation area, but for the entire economy.
However, they could not explain the feasibility of implementing such a taxation system, especially in areas like states losing their fiscal powers and the cascading effect of a receipt-based transaction tax in manufacturing and other business sectors.
When asked whether a receipt tax at every level -- starting from raw materials to sale of a product -- could lead to much increased prices because of all tax payments eventually being passed on to consumers, they said they have taken into account all issues, but did not explain the model.
In a presentation running into about 100 pages, along with a research report of over 200 pages, Arthkranti also called for abolition of all high value currency notes, preferable those of Rs 100 and above, to eradicate corruption.
Citing "official data", including from RBI, they said that Rs 1000 notes alone currently account for more than Rs four lakh crore, as against just about Rs 55 crore in late 1970s when such high value currency notes were first introduced.
They also claimed that close to Rs 12 lakh crore worth transactions are currently taking place in cash, while just about Rs 7.8 lakh crore are through the banking channels.
They also said government keeps on bringing new taxes, including in form of surcharges, to bridge fiscal deficit, but such moves are adding to the taxpayers' problems and therefore aiding large scale tax evasion.
According to Arthkranti, India currently has over 30 direct taxes while total number of taxes are close to 60 after taking into account indirect taxes. They suggested that all these taxes should be abolished and be replaced with just one small tax for all credit transactions through banks.
As per their estimate, if such a tax is levied at a rate of 2 per cent, India's central and state level tax revenues would rise to over Rs 40 lakh crore, from about Rs 14 lakh crore being garnered through current system of having a plethora of taxes. PTI BJ KSR 01071940
When asked if Arthkranti Pratisthan proposals were for individuals alone, they said it would apply to corporates as well and there would not be any differentiation between individuals, companies, or even between HNIs and those with small incomes.
While there would be no income or service taxes, the percentage tax rate would be same for everyone, they said.
While Arthkranti has suggested radical reforms in areas like elections, social security and fight against terrorism as well, their proposals for taxation area include withdrawal of all existing direct and indirect taxes at the central, state and local government levels.
This excludes customs and import duties.
At the same time, they have proposed that every transaction be routed through banks and subjected to an appropriate bank transaction tax. This deduction would happen only on receiving or credit account and the deducted amount would be credited to different government levels like central, state and local in a prescribed ratio.
Besides, the bank would also have a share in the deducted amount for performing their "key role".
The cash transactions would not attract any tax, but government should make legal provisions to restrict cash transactions up to a certain limit, for example Rs 2000. They also suggested withdrawal of high currency notes, say above Rs 50, to bring all transactions to banking system.
Listing out possible impact of these proposals, Arthkranti claimed such a system would provide "adequate revenue" to government at all levels for spending on developmental activities and for social security allowances.
It would also ensure that "generation of black money becomes technically impossible" and the new system would merge existing black money into "white money", they said.
Besides, there would be no need to file returns, challans etc, thus helping industry shift its focus from "manipulation to innovation", while the capital formation process would get stronger and help provide capital easily and at cheaper rates.
"The prices of goods as well as services will be freed from current heavy duty burden of both -- the costly capital and the heavy taxes," they said, while adding that it would also help improve the effective purchasing power of the individuals and the overall society. Arthkranti went on to say that withdrawal of high value currency notes would also help in "effective control over terrorism", as "root causes of terrorism, namely insecurity, poverty, poverty, disparity will be acted upon via provision of social security allowance and an empowered governance".
They claimed that notes of Rs 100, 500 and 1,000 account for 94 per cent of total currency money in circulation, while nearly 22 per cent of India's population lived below poverty line with Rs 30 a day, thus presenting a "skewed distribution of currency denomination".