Context for question: In the present system, loss-making companies do not have to pay Corporate Income Tax. But according to the ArthaKranti Proposal, all receipts will be taxed, irrespective of whether a company is loss -making or profit-making. Is this fair?
- There is big misconception that lost making companies do not have to pay taxes today, which needs to be clarified first. Loss making company has to pay number of taxes on the inputs, excise (CenVAT), service tax, state’s VAT etc. It not only has to pay these indirect taxes in current system, but also has to bear their compliance & administrative costs…
- As per WorldBank’s ‘Doing Business’ report, India is ranked at 158th place, where businesses has total tax rate of 62.2% (only 30% is corporate income tax), needing time investment of 243 hrs to file taxes.
- Such invisible costs of (compliance & administration) reduce the profit margin of the business. These invisible costs sometimes turn out to be non-viable for small and medium scale business; hence general tendency is towards avoidance of taxes.
About application of BTT:
- BTT is blend of direct & indirect tax. It can be passed on based on the market conditions…And in fact, BTT system removes these invisible compliance & administrative costs
- As far as question of paying BTT by firms/companies is concerned
- First of all, BTT is going to be deducted automatically as soon as money is received. The profit/loss will be determined later on, by the way how that money would be used
- Secondly, doesn’t the firm/company have to pay charges for electricity, water etc that they use, even if they are making losses?…so should not criteria be same for BTT on usage of money?
The rationale behind BTT:
- Today our country is suffering from ‘scarcity of money (credit) & burden of expensive capital’. There is lot of talent & creativity in our countrymen; however lack of credit & huge cost of capital practically deprives us from numerous opportunities.
- Because of this, money has become the central goal of life for most of us, we are compromising on all other things.
- BTT proposal is not only change in taxation system, but is a change in banking too. It promises to expand credit basket (bank money) of our country and the cost of capital is going to go down. Bank money can really act as medium, which will be adequately available and easily accessible
- Hence BTT is really going to facilitate the use of money, to serve higher goals in life!
- To make money adequately available, easily accessible, to assure its clean and white form, there is going to be a small (say 2% or 1% or even lower) tax on usage of money and that is Bank Transaction Tax (BTT)
- So instead of looking it as a tax, BTT can be seen as ‘fee’ for usage of medium of exchange i.e. money, as we pay some fees to use even any other media like internet, electricity, newspaper, transport etc.
- ‘BTT is NOT a tax on profit or income’, it is a small fee on usage of money. It will be applied as soon as one accesses that money, proportional to the usage!