Will farmers/poor also have to pay bank transaction tax?

This question generally comes with a claim that ‘farmers or poor do not have to pay taxes today‘, which is a big misconception. So let’s see what are tax implications for farmers & poor today and post Arthakranti!

First of all, according to Arthakranti proposal, for poor there is a 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.

And then there is a BIG misconception that poor or farmers do not pay taxes today in our country.

  • Please note that poor do not have to pay income tax, that is correct.
  • But income tax is not the only tax in our country, in fact income tax or direct taxes are not even half of total (central + state) tax collection in India.
  • There are indict taxes, like excise duty, service tax, sales tax (state VAT) etc. These indirect taxes are anyway recovered from end consumer, hence paid by the poor as well!
  • Except for direct farm produce, the proportion of indirect taxes in prices of commodities is significant, ranging from 10% to 40% on majority of common man’s commodities. For instance, about 50% of the component in petrol price is tax!
  • So whoever consumes (including the poor and the farmer), pays indirect taxes, which are included in the prices of commodities
  • On an average it can be safely assumed that 20% of consumption expenditure is going in paying indirect taxes
  • Hence if you compare total taxes paid even by farmers today, those are high. Assuming farmer/poor will do each of his transaction through bank still with Arthakranti’s bank transaction tax proposal, in fact the burden is going to reduce, as one can see in comparison given below

FarmerTaxComparison

This comparison is considering BTT rate as 2%, however as Arthakranti proposal is implemented completely, with merging of parallel economy in white economy, the required rate of BTT might come down below 1% and then see the comparison.

FarmerTaxComparison_2

About poor/farmers transacting through banks:

  • Post Arthakranti, they may also want to transact through banks, because there would be benefits attached to it like having better credit history, which would help them to get loans easier and cheaper, then safety of transactions, ease of transactions with mobile phones etc.
  • Though today there is no adequate bank infrastructure supporting this, Arthakranti implementation will happen over some time, may be 2-3 years.
  • The existing technology today supports wide spread of banking, based on which RBI has set up goals like bank account for every adult by 2016 etc. So whether for Artharkanti or otherwise, bank infrastructure is going spread widely.
  • If country like Kenya can bring about revolution through mobile banking, why we cannot in India?

 

 

2 thoughts on “Will farmers/poor also have to pay bank transaction tax?”

  1. Create Wealth to Create Jobs

    Our current Personal Income Tax slabs are :

    > Up to Rs 2.0 Lakhs………………….. NIL
    > 2.1 Lakh – 5.0 Lakh……………….. 10 %
    > 5.1 Lakh – 10.0 Lakh………………. 20 %
    > More than Rs 10 lakh……………….. 30 %

    That means , the more you earn , the more tax you pay !

    How does this wrong tax regime hurt our economy ?

    This regime ,

    > Punishes honest people

    > Penalizes wealth creation

    > Encourages creation of ” Black Money ”

    > Provides incentive for tax evasion

    > Diverts resources into unproductive assts such as cash/gold/land etc

    > Stops people from working harder / smarter

    With this regime , people tend to ask :

    > Why should I work hard and earn more , if the more I earn the more I
    pay ?

    > Why not evade paying taxes by hiding real income ?

    > How will I ever be able to buy that 1 room flat costing Rs 50 lakhs ? I
    need Rs 20 lakhs by way of black money to buy it ! Where do I get that ?

    > For every rupee that the government collects from me as tax , only 15
    paise come back to me in the form of civic amenities .

    A few years back , the tax regime was worse !

    One ended up paying , by way of tax , Rs 0.93 from every rupee earned !

    And after heaping on the honest tax-payers , all such disincentives , how much does our government collect by way of taxes ?

    > Total Tax Receipts ……………………………….. Rs 12.4 Lakh Crores

    > Personal Income Tax contributes………………..Rs 2.47 Lakh Crores

    Is there a way to raise that Rs 2.47 lakh Crores to Rs 247 Lakh Crores ?

    Can we raise it by 100 FOLD ?

    I am not an Economist ( my advantage ! )

    So , here is my crazy suggestion

    ” Inverse ” the tax slabs as follows :

    > Up to Rs 2 lakhs………………… NIL
    > 2.1 – 5.0 lakhs…………………. 10 %
    > 5.1 – 10 lakhs………………….. 8 %
    > 10.1 – 20 lakhs…………………. 6 %
    > 20.1 – 50 lakhs………………… 5 %
    > 50.1 – 100 lakhs………………… 3 %
    > Above 100 lakhs…………………. 1 %

    What is likely to happen with such ” INVERSE TAXATION ” regime ?

    Following few things :

    > Total personal tax payer base will go up dramatically from current 4
    crores tax-payers

    > Total personal tax collection too , will rise dramatically

    > Today , only 1 % of 4 crores tax payers ( approx 4 lakhs ) , contribute
    nearly 63 % of personal tax revenue ( of Rs 2.47 lakh crores )

    This ratio will change to , may be , 20 % of tax payers !

    > with this ” INVERSE TAX REGIME ” , there will be no incentive to evade
    taxes and to generate ” BLACK MONEY ”

    There will be no resistance to accept ALL payments by cheque / electronic
    clearance !

    The more you disclose as your income , the less you pay by way of taxes

    > For a change , we will learn to reward honesty / efficiency / productivity !
    No need to bribe those Income Tax officers !

    > Suddenly , lakhs of crores of BLACK MONEY , stashed away in bank
    lockers / gold / land – and , of course those Swiss bank accounts – will ,
    suddenly become ” WHITE MONEY ” !

    > There will be a huge surge in bank deposits ( – even with , the inevitable
    lower interest rates )

    > Banks will be awash with funds to finance businesses / infrastructure
    projects etc , encouraging entrepreneurs / self-employed to set up new
    businesses ( at 2 % interest rates of loans ) and generate millions of jobs

    > There will be a phenomenal rise in Capital Markets

    Now couple this ” INVERSE TAX REGIME ” , with the following ” TAX FREE ” investment schemes , by creating Special Purpose Vehicles ( SPV ) :

    > NaMo MEGA-CITY SPV

    To implement Narendra Modi’s ambitious project to build 100 smart cities,
    at an investment of Rs 70 lakh crores , in next 5 years

    This project alone will create 5 million new jobs , every year

    > RaGa MEGA – JOBS SPV

    To implement Rahul Gandhi’s equally ambitious project to provide jobs to
    50 million youth over the next 5 years , at an investment of Rs 50 lakh
    crores

    In my opinion , such ” INVERSE TAX REGIME ” , coupled with the above mentioned SPVs , will herald an ” ECONOMIC ECO – SYSTEM “, which,

    > will create jobs

    > shun tax evasion

    > reduce corruption

    > convert all BLACK MONEY into WHITE MONEY

    > channelize these WHITE MONEY into nation-building projects

    To complete this ECO SYSTEM , we need to think ” Out of the Box ” in the matter of Corporate Tax Regime , as well

    Current trend in industry , all over the world , is to

    > Add highly productive , very expensive machinery to ” Automate ” all
    manufacturing processes

    > Reduce manpower by increasing ” Capital / IT Intensity ”

    > Hire low skilled workers by transferring higher ” Skills ” to machinery

    > Outsource manufacturing to countries where manpower is cheap

    > Move out of ” Manufacturing ” and shift to ” Services ”

    India cannot swim against this World-wide Trend

    We must innovate, to not only survive but to grow in this scenario

    Here is my suggestion :

    Set in motion , ” INVERSION of JOB REDUCTION ” regime , under which ,

    ” The more jobs a company creates , the less Corporate Tax it pays ”

    Example :

    > Up to employment of 100 persons …………………………. 30 % tax
    > 101 – 500 persons……………………………………………. 25 %
    > 501 – 1000 persons …………………………………………… 20 %
    > 1001 – 5000 persons ………………………………………….. 15 %
    > 5001 – 10,000 persons …………………………………………. 10 %
    > Above 10,000 persons …………………………………………. 5 %

    Let us celebrate those who provide employment to large number of persons

    Let us celebrate BIGNESS

    Let us create hundreds of WORLD SIZE corporations and take on the World

    On top of this , provide additional tax – breaks ( discounts ? ) to corporate as follows :

    > Average Age of Employees at 30 years………………….. 1 %
    > Ave age at 25 years…………………………………………. 2 %
    > Ave age at 20 years …………………………………………. 3 %

    Of course , very strict and transparent rules will need to be framed to

    compute,

    > Number of Employees ( Permanent – not probationers / trainees )

    > Average Age ( as on 31 March of Tax year )……etc

    But , here is an important aspect of this ,

    ” Incentivize Job Creation ” Scheme

    Today’s labour laws make it extremely difficult – if not impossible – for employers to layoff / retrench workmen , if demand shrinks

    Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand

    So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned

    And , last but not the least , permit each and every candidate – and the political parties as well – to spend ANY AMOUNT on election campaigns ,
    without any restrictions as also accept any amount of Corporate Donations
    by cheque

    I rest my case !

    * hemen parekh ( 27 Feb 2014 / Mumbai )

  2. If 10% is taken from a guy earning 2 lakhs (where as 96% of the people fall in this bracket, as per your own calculation), they will stop consuming, so whom will you produce for?? Yes, people will look for more money, which they are doing now too! As you go rich, your tax comes down.. now too that is happening, but illegally. Rich people – land lords, businessmen, politicians etc hardly pay taxes. Tax is only paid by employees in the country, so if reverse taxing regime comes, only a poor man’s tax is increased !! I don’t think it is a great idea.

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