Context: How Arthakranti proposal does justice to poor, by removing existing tax slabs? Indirect taxes are supposed to be unjust on the ground that they make poor pay more…suppose—– income 1 lakh Rs income person— pays 10 paise tax on purchase of match box. 1 thousand income — person pays 10 paise on purchase on match box. By removing present tax structure how does Arthakranti gives better justifiable option. Isn’t Arthakranti regressive, hence inequitable?
First of all, let’s note that it is misleading, rather it is incorrect to consider current tax system as progressive and equitable. But in fact, the current tax system is regressive in practice, hence unfair. To know about details on the same, pls refer to ‘CURRENT TAX SYSTEM, IS IT REALLY PROGRESSIVE & FAIR?‘.
“A fair tax is one you can collect”.
In Bank Transaction Tax (BTT) system proposed by Arthakranti, scope for tax evasion is less, also the compliance and administrative costs will be minimal. Hence BTT system turns out to be much fairer in practice than current taxation system.
We just cannot look at direct taxes or tax slabs. In order to get the realistic picture of ‘how much taxes (direct + indirect) are paid by whom for pre and post Arthakranti?‘, we need to get consumption pattern of people based on categories of income and tax component in the prices of commodity consumed by them along with other taxes.
Now let’s consider the argument about progressiveness of transaction tax system:
- First of all, according to Arthakranti proposal, for poor there is legal provision of transacting in cash, upto certain amount (say Rs. 2000/-). And there is no tax on these small amount cash transactions, which can be easily done in smaller denomination like Rs. 50/- or below. So Arthakranti does NOT add tax burden to the poor at all.
- About tax component in the prices of commodities, it will increase if the commodities involve higher production chains. So there will be more tax component in prices of sophisticated products which are likely to be used by higher income group. And there will be less tax component in the prices of simple products which will be used by lower income groups. In that sense taxation system proposed by ArthaKranti becomes progressive.
- Also there are studies which indicate that higher value of transactions are carried out by people having higher income hence effectively more transaction tax will be paid by them.
Considering overall equity to be achieved by government, if we load (as is currently) the whole burden of various functions like tax collection, income distribution, lowering regional disparities on tax system, the tax system becomes complex and may look progressive on paper but in reality it fails to perform even its primary function i.e. revenue collection. As Professor Richard Bird from Canada, a Global expert in taxation says – “The best tax system is the one that produces the most revenue in the least costly and distorting way…“.
Government should also look at bank transaction tax as a means for generating revenue with less chances of evasion, with little pinch to all who pay taxes. Then government can spend in creating public infrastructure available at affordable prices for all. The government can give subsidies to those who genuinely need them by the way of transferring money directly to their bank accounts. This is particularly important for low income groups.
To know more about international experts’ views on this, please go through – http://arthakranti.org/proposal/objections-and-positions/68-regressive-and-inequitable
One more important point from equity – BTT applies equally on capital and labor, unlike current system where capital is preferred over labor. This effect can have positive implications in employment opportunities, which is significant problem in highly populated country like India. This will consequently result in creating equitable conditions for people!