Context: The objection is that if bank transactions are taxed at 2%, then why would people transact through banks? They would rather start transacting in other parallel means as cash or barter like ways, people would lend each other in cash. So will not this lead more people to operate in cash and leading to more black-money?
This is very logical and obvious question, however answer will also emerge simply & very clearly, if one considers different aspects together and practicalities involved, as listed below.
First of all, let’s revisit the 2 points from the five point Arthakranti proposal
- ‘High denominations (currency say above 50) to be removed’ –
- This point has obvious consequences of removal of existing black money stashed in cash. Also it will make practically difficult to operate in cash, which is tool for corruption.
- This has several other benefits than common perception, to be referred at this LINK
- ‘Legal protection for cash transactions only up to certain limit (say Rs. 2000/-)’
- For instance, if one tries to buy mobile of 3000 in cash, he will be able to, but then he would not get warranty for the same. If one tries to buy vehicle in cash (let’s say in Rs. 50 notes), the vehicle would not be registered at all
People naturally follow the path which is more convenient and has more benefits. So post Arthakranti, the path of banking transactions will offer lot of multi-dimensional benefits and hence would be followed by majority!
Other motivating factors, encouraging bank transactions even with Bank Transaction Tax(BTT):
- With more bank transactions, people will start getting higher loans at cheaper interest rates
- Due to lack of adequate credit supply and the lack of adequate credibility, today loans in our country are costly (10% to 16%) annual rate of interest, if you get it from banks. If one gets it from private lenders (most of the poor and people who do not use banks), the rate is even higher, sometimes 120% to 3600% annually!
- With Arthakranti proposal, most of cash money will have to be put in banks, government’s tax revenue will be adequate and banks getting fees on every transaction, all these would lead to reduction in interest rates significantly.
- Only those people will get cheaper loans from banks, those have good credit history!…and for any purpose, may it be education, farming, business etc
- The transaction tax will be a smaller amount, it will be lower than 2%, as more people start operating in cash, it would reduce further even below 1% → For details please go through chapter 6 in the paper.
- This small amount of BTT is packaged with removal of all other tax burdens, like removal of income tax and significant reduction in indirect taxes!
- Also people in business today say that they prefer paying more taxes than complicated burdensome processes. So with Arthakranti the creativity will be completely freed from tax manipulation, the compliance is automatic. This is probably the reason Confederation of All India Traders has endorsed Arthakranti.
When Securities Transaction Tax (STT) was introduced, there was a speculation that financial market would collapse. Now you can see the results yourself, STT did not matter, market adapted itself to the new tax and moved on easily.
Also look at what economic experts have to say about the concern of people moving to cash or other means – Experts’ view.