The Deposit Transaction based Income Tax System
Trivedi Rajesh
Caterpillar Electric
Pvt Limited – New Delhi, India.
Email: advocate.dma@gmail.com
Abstract: The present Income
Tax system no doubt brings money for the government, but it creates dishonest
citizens and corrupt officers. The government world over are able to deduct
income tax from various salaried employees but the problem happens when the
question of assessment of self employed business people and business entity
arises. In such cases the question of parting with the self earned money creeps
in and people tend to evade, this evasion when caught brings in government
officials into picture and in many cases corrupt dealings take place. The
proposed system eliminates involvement of people in deciding and depositing the
income tax.
A. The
system
1. Deduct
1% (or as fixed by the government order from time to time) from every deposit transactions
in the Bank / Post offices.
The following transactions are
included (a more exhaustive list may include few more)
1. All
salaries deposits irrespective of amount.
All organizations
that employ people are required to make salary payments through banking channel
only. This condition may be waived for salaries below Rs. 15000=00 (or as fixed
by the government from time to time.)
2. All
third party cheque / DD / RTGS / NEFT deposits.
3. All
cash deposits.
The following transactions are
excluded (a more exhaustive list may include few more)
1. The
cancellation of DD and transfer of the funds in the same account from where the
DD was made.
2. The
transfer of money of the FDR / TDR in the same account, in such cases the 1%
shall be deducted from the interest gains made (Maturity Value – Face Value)
amount.
3. All
the transactions like EMD/Security Deposits/share fee at the time of
application etc shall be lien marked by the banks without any physical transfer
to the respective organizations.
B. The
steps required to be taken before implementing this, various statutory acts may
be required to be passed in order to
achieve below:
1.
Creation of a uniform credit head, in favor of central government,
to which this money will be transferred by the Banks/Post offices.
2.
Withdrawal of Rs. 500 and Rs. 2000 denomination notes
in phased manner.
3.
Inclusion of civil and criminal liability to the
companies / firms / employers in case they make the salary payment through cash
subject to the lower level.
4.
Creation of a distinct class of employees who can
receive salary in cash, special safeguards to be provided to such employees by
the employers.
5.
All mercantile transactions between two firms /
companies shall be through non-cash transactions only, involving banking
channels.
6.
No firm or legal entity can rightfully claim additional
1% on this account.
C. Understanding
the flow from a common man’s perspective
A common man gets a salary of let us say Rs. 30000 in the
form of cheque or direct transfer to his account. Bank deducts 1% that is Rs. 300
immediately and transfers the same to government tax account, so now he is left
with Rs. 29700=00.
Due to promotion and ease of digital transaction most
of his daily expenses or larger expenses can be handled digitally, thus
bringing all his transfers (which are revenue to others) in tax net, but still
there could be a few transactions which may require cash, so he withdraws the
cash. But ultimately this cash will return to banking channel due to strict
compliance of firm / companies transactions only through banking system.
Authorities should not get tempted to charge withdrawal tax
from the common man.
D. Understanding
the flow from a firm’s / company’s perspective
A firm or company is required to make all purchases
through digital transactions only, similarly all the sales proceeds are
required to be collected through digital transactions only. Whenever any
payment is received the bank shall deduct 1% income tax and transfer to the tax
account. Likewise these entities are required to provide all the expenses and
salaries by cheques only.
But these firms or companies may require cash for
giving salaries to lower level of employees (below Rs. 15000 or as fixed) and
also for few other day to day activities, but they are different from a common
man, so for this cash they have to necessarily approach Banks for withdrawal,
in that case from such entities a 1% withdrawal tax can be collected. This will
ensure taxed cash circulation as created by these entities. Due to this
additional burden of 1% they may encourage their employees to go in for
instrument based salaries rather than cash based salaries.
All firms / companies irrespective of their business models
must do their mercantile transactions (sale and purchase of goods and services)
through banking channel only, thus the cash flow for these firms can only be
through withdrawal from the bank account and that shall be charged at the same
rate as that of deposit rate.
E. The
advantages of this system
1.
It will remove the discretion of tax payers about tax
assessment, thus minimizing the possibility of evasion.
2.
Huge Income Tax department infrastructure can be
dismantled and can be put to other usages by the government.
3.
The business entities shall be happy and shall report
true figures as nominal and steady deduction is taking place only on realization
of money, as of now they are required to pay on the total sales irrespective of
realization.
4.
The government will also have regular and daily flow of
income tax revenue instead of current advance tax and year-end tax collection
system.
5.
People can be caught not for the tax evasion but
because of having money beyond their known source of income.
6.
The banking reach shall be much wider, and required infrastructure
at the rural level will come up.
7.
Citizens will not have the stigma of being termed as
tax chors.
8.
The government can leverage the tax rate at any moment
by simply instructing the Banks.
F. The
disadvantage of this system
1.
The possibility of growth of cash dealers will have to
be seen.
2.
The ethics of charging 1% tax on entire revenue
including the compounded GST in mercantile transactions may be questioned. This
may be kind of double taxation, but can be managed.
Conclusion:
A very simple and easy to implement income tax system is proposed, major civil
advantage of this system would be complete elimination of Black money and tax
evasion and also reduction in revenue services corruption. Under this system
commercial entities shall be encouraged to report their true figures thus
giving the true picture of the nation’s economy.
