Arthakranti Proposal: a ground breaking reform or an ill-conceived notion

tax good

Taxes do contribute to the growth and overall development of the nation. Many working in the corporate sector remain unaware of the TDS that is deducted by the company prior to the payment of salaries, but it remains one of the biggest hurdles faced by both the working class as well as entrepreneurs.

On the one hand, forgery and evasion of taxes are a crime and on the other payment of taxes can be a pain. Many tax consultants still suggest evasive methods to save their clients income. These measures also involve fleecing the government of their revenue and bribing income tax officials.

A whatsapp message that circulated among users garnered much attention. It was a tax reform that Arthakranti, an NGO based in Pune, Maharashtra, had proposed. The very basic idea of the proposal is to abolish the entire taxation system in India.

Yes, you read that right; the proposal suggests the scrapping of 56 taxes including Income Tax, but excluding customs.

A recent conversation with an entrepreneur friend got me thinking about the Arthakranti proposal. He stated that the taxation system was a big hindrance to his business model in terms of maintaining accounts and paying taxes. However, we do concur that the current taxation regime is strictly complicated.

The Arthakranti proposal rather suggests an alternative tax system that could truly be termed groundbreaking.

  • Withdrawal of existing taxation system completely (except customs, i.e., import duties)
  • Introduction of a Transaction tax, i.e., a minimum deduction on all transaction routed through a bank
  • Withdrawal of high denomination currency (maximum Rs 50)
  • Cash transactions will not attract any transaction tax
  • Make legal provisions to restrict cash transactions up to a certain limit

“If this system is in place it would actually change the way the government in the long run. It could mean more revenue for the treasury, curbing leakages in the form of corruption, etc.,” said G Karthik, an investment banker.

From the consumer’s perspective, the guilt of evading taxes and the headache of various tax formulae will completely disappear. Whatever money arrives at the bank, will incur a transaction tax of 2% that will be automatically deducted from the customer’s account. Thereby, leaving the accounting hassles to the bank.

Yet, these proposals have dissenters. “The concept would take so much time to be implemented. Moreover banking transactions have only occupied 20% the financial system,” said L. Anita Kumary, an associate professor at the Gulati Institute of Finance and taxation, Kerala.

“With the Jan Dhan Yojana, that problem should be covered. Moreover, this proposal is the best tool to fight corruption. Look at Kerala; we are well ahead in terms of banking and financial services. We could curb corruption in the form of election funding,” said Sudheer Kumar, a member of Arthakranti.

It would be unfair to say that the proposal lacks intellectual capacity. A similar proposal was introduced in the U.S. though it was never implemented. A recent report stated that the proposal would be subjected to a high-level learning by the Central government.

We might have to wait and watch for the government’s response, but if the proposal comes into existence, we would be the first among nations and would be the very first concept of governance that India did not borrow from the west.