Abolising Taxes.. Arthakranti Proposal of an alternate Government revenue model

Today I received an whatsapp message about an organisation called Arthakranti Sansthan, which is proposing an alternate to the existing financial governance for the country. The message can be read at the end of this blog post.

Normally, I do not read long whatsapp forwarded message but this message had a line that attracted my attention. It said, "Scrap all 56 Taxes including income tax excluding import duty". 

From the day, I have become an entrepreneur, taxes have been a big hindrance to my business model in terms of maintaining accounts and paying taxes. The current tax structure is simply too complicated. I believe we should pay taxes and contribute to the overall growth and development of the country. However, it was an easy belief system till the day I worked in the corporate world of TDS, where tax is deducted by the company giving you absolutely no trouble in terms of paying your taxes rightfully.

After I have started my business, taxes have been my biggest hurdle. At one end, I simply can't forge and evade taxes. At the other end, paying tax rightfully is a complete pain in the ass. For instance, I have not met a single sales tax consultant who is willing to accept my proposal of paying sales tax rightfully every month. They all say, you should not worry about taxes till your business gets an annual revenue of over a crore. We will manage your taxes (by evading it and bribing the sales tax officials).

So a proposal of an alternative tax structure was a dream come true for me. I continued reading the Whatsapp message. It had a list of FIVE point of actions:

1. Scrap all 56 Taxes including income tax excluding import duty.
2. Recall and scrap high denomination currencies of 1000, 500 and 100 rupees.
3. All high value transaction to be made only through banking system like cheque, DD, online and electronic.
4. Fix limit of cash transaction and no taxing on cash transaction.
5. For Govt. revenue collection, introduce single point tax system through banking system – Banking Transaction Tax (2% to 0.7%) on only Credit Amount. 

As a banker (a decade of banking experience), I would say that it is a great long term idea that can change how a country is run. It will be perhaps the first idea of governance that India has not borrowed from the West. Even our constitution is a borrowed cut and paste job!

From a consumer perspective, the head-ache of paying taxes and the guilt of not paying taxes will completely go away. Whatever money would come to the bank, 2% (or less than that) would be automatically taken out. The accounting hassle will lie with the bank and they have the talent to do the same.

The decision to scrap the higher denomination currencies is also a great idea to discourage cash transactions. It will increase card based transactions at shops and other business establishments. I would be saved of the hassle of going to the bank to deposit cash standing in a queue. I would be saved of the hassle of giving change back to the customers.

For the Government, there will be those fews banks to reconcile the revenue collection.

No taxing on cash transaction is also a boon for the poor. Although it sounds like a double edged sword benefitting the cunning businessmen and the capitalist as well, yet I would support any policy that will primarily help the poor in their day to day life.

One of the most corrupt departments in Assam is the Sales Tax Department. This new model will completely stop departmental corruption at the tax collection level. It will also stop other kinds of corruption which mainly survives on cash transactions. Without high denomination currencies, under-the-table cash transactions will be severely affected.

Having said all that, I have one point of discussion. I believe that all policies should aim for an egalitarian society for peace and prosperity. It should try to create greater or equal opportunities for the poor as well. As we know that India is corrupt, not because our rules and structures are weak, but because our conscience and dharma allows us to become selfish and corrupt, so it is pertinent that this new taxation model should not have loophole for the rich to become richer by evading taxes.

For instance, I am not doubting that banking penetration can be increased and every citizen will be part of the banking structure in the future. I am doubting our mentality to evade taxes and therefore will always carry on cash transactions avoiding taxes completely. Even if the Government put a limit on cash transaction (say Rs. 2000), will that stop the citizens to carry out cash transactions?

One thing is certain that it will help the small businesses who earn less than Rs. 2000 a day. We surely have a huge percentage of people living in that kind of earning per day across the country. The moot question however is whether it will stop economic polarity, the difference between the rich and the poor, the difference between the haves and the have nots.

Whatever said and done, a large scale national debate should start on this idea and quick actions should be taken by the Government.


WhatsApp Message:

Mr.Arun Bokil , one of the key member of Arthakranti Sansthan was given time to share to PM Modi before recent election. He was given 9min for sharing but Mr Modi heard him for 2 hrs.

“Arthakranti Sansthan” is an Economic Advisory body constituted by a group of Chartered Accountants and Engineers. Arthakranti Proposal is an effective and guaranteed solution of Black Money Generation, Price rise and Inflation, Corruption, Fiscal Deficit, Unemployment, Ransom, GDP and industrial growth, terrorism etc.

“Arthakranti Proposal has FIVE point of actions simultaneously.

1. Scrap all 56 Taxes including income tax excluding import duty. 
2. Recall and scrap high denomination currencies of 1000, 500 and 100 rupees. 
3. All high value transaction to be made only through banking system like cheque, DD, online and electronic. 
4. Fix limit of cash transaction and no taxing on cash transaction. 
5. For Govt. revenue collection introduce single point tax system through banking system – Banking Transaction Tax (2% to 0.7%) on only Credit Amount 

Important Points to note:

1. As on today total banking transaction is more than 2.7 lakh crores per day say more than 800 lakh crores annually.
2. Less than 20% transaction is made through banking system as on today and more than 80% transaction made in cash only, which is not traceable.
3. 78% of Indian population spend less than 20/- rupees daily why they need 1000/- rupee note. 

What will happen if All FIFTY SIX Taxes including income tax scrapped :

1. Salaried people will bring home more money which will increase purchasing power of the family. 
2. All commodities including Petrol, Diesel, FMCG will become cheaper by 35% to 52% .
3. No question of Tax evasion so no black money generation.
4. Business sector will get boosted. So self employment. 

What will happen if 1000/ 500/ 100 Rupees currency notes recalled and scrapped :

1. Corruption through cash will stopped 100%.
2. Black money will be either converted to white or will vanish as billions of 1000/500/100 currency notes hidden in bags without use will become simple pieces of papers.
3. Unaccounted hidden huge cash is skyrocketing the prices of properties, land, houses, jewellery etc and hard earned money is loosing its value; this trend will stop immediately.
4. Kidnapping and ransom, “Supari killing” will stop.
5. Terrorism supported by cash transaction will stop.
6. Cannot buy high value property in cash showing very less registry prices.
7. Circulation of “Fake Currency” will stop because fake currency printing for less value notes will not be viable. 

What will happen when Banking Transaction Tax (2% to 0.7%) is implemented:

1. As on today if BTT is implemented govt can fetch 800 x 2% = 16 lakh crore where as current taxing system is generating less than 14 lakh crore revenue.
2. When 50% of total transaction will be covered by BTT sizing 2000 to 2500 lakh crores, Govt will need to fix BTT as low as 1% to 0.7% and this will boost again banking transaction many fold.
3. No separate machinery like income tax department will be needed and tax amount will directly deposited in State/Central/District administration account immediately.
4. As transaction tax amount will be very less, public will prefer it instead paying huge amount against directly/indirectly FIFTY SIX taxes.
5. There will be no tax evasion and govt will get huge revenue for development and employment generation.
6. For any special revenue for special projects, govt can slightly raise BTT say from 1% to 1.2% and this 0.2% increase will generate 4,00,000 crores additional fund!

Politics of development is as narrow as the politics of secularism and communalism.

Modi is riding the development wave. He and BJP has successfully created this common perception over the past decade that politics now should be played on development and that BJP has the lone copyright on 'development'. The most common instance given are the roads of Gujarat to prove development, then the Tata Nano plant and then the opinion that most Gujarati (s) are rich.

I was convinced about the need for development, and the need for politics to be based on development and progress. I liked BJP for taking that plank. (However, I never liked Modi read this blog). In offices and in various dinner parties, development was the most discussed topic.

Over a lot of dinner table discussions, media reports and my own research, I realized that nobody has defined the measurement of development. For a Capitalist, development means something completely opposite to what it means to a Socialist, or a Leftist. Development means a certain thing for a salaried employee, and it means something else for a self-employed. Development carries a certain perception for urban population, and means something completely different for the rural population.

Today, Congress in Assam has released a full page advertisement on the most widely circulated Assamese daily - Pratidin. It says, "Reality of Gujarat in comparison to Assam". The ad signs off saying, "Action speaks louder than words". It gives various statistics to prove that indeed Gujarat is much lesser developed than Assam. One of the point says, "For every 100 sq. kms, Assam has 308.26 kms of road whereas Gujarat has 79.68 kms of road only".

This advertisement may fool the people of rest of India, but not the people living and suffering in Assam. This ad has clarified in my mind that 'development' politics is no different from 'secularism' politics. Both are shallow, mis-leading, corrupt in their meanings and mere vote led politics.

Some Statistics shown in the Ad

1. For every 100 sq. kms, Assam has 308.26 kms of road whereas Gujarat has 79.68 kms of roads only.
2. Women in reserved seats: Assam (33.3%) Vs Gujarat (14.7%)
3. Per 100 boys going to school: Assam (100 girls) Vs Gujarat (85 girls)
4. Farmers with loan debt: Assam (18.01%) Vs Gujarat (51.09%)
5. Hunger Index: Assam (4th) Vs Gujarat (13th)
6. Allotment for Rural development: Assam 3.13% vs Gujarat 2.80%
7. Allotment for Health and Medicine: Assam (4.8%) Vs Gujarat (4.6%)
8. Health Development Index: Assam (3rd) Vs Gujarat (13th)
9. Education Development Index: Assam (23.25%) Vs Gujarat (12.7%)
10. Loan NPA: Assam (29200 crs) Vs Gujarat (176500 crs)

Please note that this blog is NOT IN SUPPORT of CONGRESS. This is only to prove that we all can bluff on development. Even the most corrupt Congress Govt. in Assam can. It is primarily because development has no standard definition.

Corruption on the other hand has been given a definition by AAP. It is primarily segmented into two categories: Exploitative corruption and Mutual corruption. Exploitative corruption is the kind where the common public feels exploited, but is helpless to just accept it. So only one of the party benefits. Mutual corruption is the kind where both or all the parties involved are benefitting from the transaction. There is a third party or the country which is getting the hit.

Corruption not only takes away tax money meant for welfare, but also creates inefficiencies all across the economic and social value system. The most critical negative side effect of corruption is the effect it has on the character and morality of a society. It has a lot of indirect effects as well. For instance, the standard of driving and traffic skills is the poorest in the district where the department issuing licenses is most corrupt.

If we can reduce corruption either through fear or through awareness by 50%, Govt. expenditures will become 50% more effective and development will increase by over 50% automatically.

It is time that we understand what each of the political parties are saying in the real sense of the term. We should discuss, read and spread awareness. We have seen enough political promises and we have got cheated enough number of times by the ruling class.

It is time we vote for a party which is created by the Aam Aadmi with a clear focus on the common man. With Swaraj Bill and the Jan Lokpal Bill, it will bring power to the grassroots and thereby reduce mutual corruption in the ruling class. Jan Lokpal Bill will create necessary fear in the bureaucracy and the Govt offices and thereby reduce exploitative corruption.

Support AAP. Join AAP. Donate for a corruption free Assam, and India.

Resignation of Arvind Kejriwal and the AAP Government

First Post writes "Mr Kejriwal, next time make some friends, not just enemies"  Various other publication has written various other things. All these just make me think that whatever AAP and AK has been doing is beyond conventional logic of analysis and paralysis by intelligentsia and journalists. 

India has not seen this kind of politics and political will ever. Like no intelligentsia could predict the 28 assembly seats in Delhi, even this great gutsy act of AK and AAP is beyond any prediction or analysis. The common logic of friends, enemies and lobbying just does not apply when it comes to AAP and AK.

It is remarkable that AAP and AK has maintained their consistent intent and approach even after becoming a Government of power. The clarity of intent against corruption and the mindset regarding honesty is very apparent in whatever the party has done till date.

We all know that today the whole system and its people holding positions are either corrupt, or has accepted that corruption is the necessary evil, or has got defeated to corruption and its vicious grip. It would have been a completely normal and accepted behaviour if AAP had tried to make friends with some to win against some others, like this article tries hard to explain. Anybody in the political system today would have done so. 

AAP has defied that common logic and had refused to make friends with anybody with any record or intent of corruption, right from media, business houses to political parties. It is against choosing the lesser corrupt against the more corrupt.

Hail that thought and intent. My salute.

Like it won thousands of friends who voted them to power, it will continue to win friends in the existing system overtly and covertly, gradually. There are people frustrated with the level of corruption. There are people who have suffered and continues to suffer because of corruption. Nobody today can claim that they have not given bribe in their entire life. The system has compelled us to become corrupt, or suffer.

AAP just needs to keep the intent and will alive, friends will automatically come.  What AAP is doing is so unconventional that there are bound to be 'user resistance' after the initial momentum of support tapers down.

Secondly, BJP and Modi is riding the wave created by lack of options, and the public hatred for fragmented polity and Congress party. AAP is the new option and there are a lot of Indians waiting to see how AAP maintains itself for another few months. Like I became a recent convert from BJP, there will be many BJP supporters that will come and become friends with AAP in the coming months.

I just wish AAP and AK continue its hardline stance against corruption. I also wish that the other members of AAP gets the strength from AK to continue their hard struggle. This revolution will one day sweep every Indian household across the length and breath of the country.

Corruption - Cure is in the regulation of money !

Is it possible that there will be a day when corruption will be a non-issue?

In lot of our discussions during our Old Monk sessions or otherwise, we indulge in a numerous points of arguments and reasons why corruption happens in India. It is an established argument that it is intrinsic to human behaviors and instincts. The primary opinion that arises is that corruption is omni-present and that we are a helpless party to it.

In a country like ours, the extent and effect of corruption is worse. India is been a poor country for a long period of time without enough end-resources to distribute among its very large base of citizens. British imperialism, fragmented strata-ised society, in-ept sub-optimal policies after independence leading to unequal development and distribution of economic wealth and resources, discrimination in providing education etc has made India a hot bed for the corrupt minds to wander and fulfill its desires.

It has made it very easy for a small section of the population to take undue advantages from the Indian system of administration and political governance. In effect, it has left a huge section of the population disgruntled, unable to lead a decent respected, sufficiently privileged life. Whenever the latter is getting a chance to move into the former, they are getting corrupt for its benefits with a revenge.

Adding to that is the Indian mind-set of thinking of only about his or her own self (and immediate family) with the focus on the result or the end, rather than the means. It doesn't matter to a Brahmin that he is taking a dip in one of the dirtiest river of the world - Ganga. What matters is his belief that taking a dip absolves him of all his sins.

It doesn't matter how we secure a salaried Government job, but having a job matters. If we pay through our noses to get a particular job, it is imperative that we will cut our noses and try to regain the lost wealth and more through corrupt practices.

Morality and the notion that all human beings are good is not going to solve corruption. To err is human too, and greed is one of the seven vices of human beings. Only regulation, policing and tighter controls can reduce corruption. Regulation, policing and controls can be structured in numerous different departments, offices and systems. It is too broad to even discuss.

Lets just take regulation of money and analyze how money itself can be a solution to our greed for more money. Money in India is primarily controlled by the monetary policy of the Central Bank of India - the Reserve Bank of India through its various policies and circulars that all banks have to follow in terms of dealing in money. One of the reasons I see hope in this argument is my experience of working in for two of the biggest banks. RBI has been a robust intelligent institution with an independent mind of its own, devoid of corrupt intent to a large extent.

Argument One:
All Government aid to a citizen should be in monetary terms deposited in a bank account or a post office account of the citizen.

Over the past 60 years, the Government has instituted numerous policies and schemes for public welfare and otherwise, to help different sections of its population in various ways. Mid-day meals, Cereal Distribution through PDS and almost all such schemes are not monetary in nature. The benefit goes to certain people who then must be honest to distribute it to the masses.

If all or most of the Government aid is distributed as money to the bank accounts of its citizen, I see two important benefits. One, all monetary aid will cut the dishonest middle man. Two, money is the fuel of the economy that can start or speed up the progress and development of a society. We can refer to Keynesian Economics to understand what I am trying to refer here.

In 2000, Indian Government has spent Rs. 361 Billion on social services which include education, health, family welfare, women and child development etc. It was 11% of the total Government expenditures. Imagine the amount and level of corruption that can happen in the distribution of this amount in kind through various services.

My argument is that we should set aside the capital expenditures required to build infrastructure, and distribute the rest in terms of money transfers directly to the bank accounts of the citizens.

Argument Two:
The documentation requirements (KYC) to open an account should be relaxed so that opening an account can be pushed strategically by the Banks going to the customers.

Banking penetration in India is awe-fully inadequate on all fronts. States like Manipur, Nagaland, Bihar, Assam, Chattisgarh and Uttar Pradesh have the lowest branch penetration, upwards of 26000 people per branch. Thankfully, financial inclusion is a stated objective of the Reserve Bank of India policy. The main intent is to reduce the average population per branch. The Rangarajan Committee has defined financial inclusion as “the process of ensuring access to financial services and timely adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost”

RBI is adopting diverse modes including banking correspondents and encouraging mobile based transactions. Budget 2010-11 has, in fact, set a target of providing banking facilities to all habitations with a population over 2,000 within two years, using such modes.

My argument is that financial inclusion is a possibility when the bank account opening guidelines are made easier for all citizens. The KYC norms require a long form to be filled, identity and address verification documents and most crazily, a bank official has to meet the citizen to open his bank account. Isn't that a tough ask?

Why should account opening be such a tough task that illiterate, semi-literate and even the literate run away from opening a bank account? The reason is primarily to discourage money laundering, which is converting black money into white money for legal and illegal activities. I think this is an exaggerated fear of possibilities arrived through human logic and excessive deductions. Money laundering and such practices are done by the rich. The pertinent questions are what is percentage of rich people that we have in India, and how many of them would do money laundering or such financial crimes?

My argument is that the risk or harm is fraudulent account opening is lesser than the harm being caused by mis-apportioning of Government funds in billions in the context of the overall good of the country and its citizens. So we should make opening of accounts easy and remotely possible in mass.

Argument Three:
All cash transactions should be discouraged. Instead, electronic transfers, card based transfers, voucher based transfers, prepaid instruments etc should be incentivized.

Once we have a fix on the financial inclusion agenda in a few year, this will be easier to implement. Although, this needs infrastructure, RBI has instituted robust systems and protocols such as NEFT, RTGS, IMPS, RUPAY etc that will make cash less transfers a reality in the short future.

The argument that uneducated people can't use newer modes of payments is completely baseless. The older generation may be a bit uncomfortable with learning these new ways, but the youth of the country will pick it up and make it common-place. Who would have thought that Facebook in rural India is mostly accessed through Internet enabled mobile phones. Once the facility is available, robust, useful and is communicated well among the citizens, there is no reason that the facility won't be used.

The trading fraternity sees a lot of benefits in the cash economy. The primary benefit is tax evasion to the extent possible. What they don't realize is the indirect negative impact of tax evasion for the physical and mental health. If a business is profitable, cash transactions can never be beneficial in the long run. All big businesses therefore prefer banking transactions to cash un-accounted transactions.

My argument is that cash transactions is tightly linked to corruption and all efforts should be made to discourage cash transactions and reduce corruption.

About dirty Ganges and rampant corruption...

Recently I read a very enlightening book by Mr. Pavan K. Varma. It is called 'Being Indian'. It is a brilliant book of insights from an extremely observant intellectual, who tries to demolish myths and generalizations about Indians.

He gives a great epic on his views on Indian psyche, on what makes Indians tick and what they have to offer to the world in the 21st century.

I was stuck by two obvious traits that we experience everyday but don't normally think too much about the root cause. It is about why our holy Ganga  is dirty and why do we have such rampant corruption in the smallest things we do in our day to day life.

He says, Indians don't care about the community as much as they care about themselves. The whole world revolves around himself and his family, community coming among his least priorities. Then he adds, Indians don't care about the means as long as the end is clear, positive and good by conventional standards.

Most of the phenomena that we observe around us can be explained by these two traits.

Whether it is the noise pollution / water pollution during Ganapati celebrations in Mumbai, or the garbage disposal behaviour of Indians, we see that Indians do not care about the community as a whole. They do not care how dirty the Ganga is, as long as the belief is to become sin-free by immersing in it. All common sense would imply that any holy place would be most cared for, clean, organised and looked after. In India, we hardly see any clean, organised temples across the country. There are efforts by the temple committee but those efforts end in their personal benefits and their personal beliefs about their part of the duty towards God. Its ultimately all about the end.

The author has given innumerable instances to prove this trait including those that we all know in Mahabharata involving Lord Krishna and Arthashashtra written by Kautilya.

In the same breath, Hindus, contrary to popular belief, have no inclination to understand the six schools of Hindu thought. Their pre-occupation is with the ritual of religion and the rewards that it can offer. The pursuit for the fruits of religion and not the religion per se. The end is important, not the means.

The author gives an interesting example of the Gora Baba in a village near Lucknow. The Gora Baba - an English man who died during the 1857 revolt, is known to fulfil every wish of his followers. Since he was an Englishman, he is offered liquor, cigarettes and meat. A prayer is incomplete without the lighting of a cigarette, which is then offered along with the agarbatti.

It is this trait that make us tolerate and encourage the smallest and silliest of bribes that we pay in our everyday life. The job should be done and ultimate profits should be made, and in the process if we have to organise for chai paani, its alright till the job is getting done quickly and to desired results.

I am sure we have enough examples of such instances, stories and anecdotes.

The book is a well illustrated and substantiated personal opinions of Mr. Pawan K Varma. Any Indian with interest to discover Indians should definitely read the book.

You may decide to disagree with his views, but his views would definitely widen your horizon of thinking about Indian and Indians.

For me, it worked. I loved it.