Background:

The current tax system needs to be replaced due to the loopholes present. Presently, only 3% public of India pay Income Tax and rest 97%  public regularly find newer ways to evade it because the burden of the tax is high. Straightaway one-third percent of a person’s income goes to govt. in form of Income Tax. Also, there is deficit in the government’s treasury due to complex taxation system and certain flaws present such as corruption.

To solve this problem an initiative was taken up by Mr. Anil Bokil, a mechanical engineer by profession. He suggested Mr. Modi the idea of demonetization in 2013 in Ahmedabad. Mr. Bokil started working on the idea of Alternate Tax System from the year 1999 and got an organization registered in 2004 as “Arthakranti.”

Current Scenario:

India is a developing nation and has three – tier structure controlled by:

  • Union Government;
  • State Government;
  • Local bodies.

Indian Government depends very much on revenue collected in the form of tax . In India, there are approximately 73 types of taxes such as Service, Customs, Stamp duty, etc.

What is Alternate Tax System:

He have 5 proposals under Alternate Tax System as follows:

1. Withdrawal of existing taxation system completely (except customs) because it is related to outside world.

2. Every transaction routed through bank will attract certain deduction in appropriate % as Banking Transaction Tax (BTT) e. single point tax deduction at source @ 2%. Explanation: to deduct 2% from amount credited in bank account everytime in form of BTT. After that no need to pay Income Tax.

3. Withdrawal of high denomination currency i.e. currency greater than Rs. 50. According to a survey 90% people in India spends only Rs. 20/day. Therefore, if this statistics is to be true then Rs. 50 as the highest currency is more than enough. This will ultimately erode black money as it will be difficult to carry amounts in huge amounts such as 1 cr/ 2 cr.

4. Cash transactions will not attract any tax. And he also proposed to place a limit on cash transactions i.e. Rs 2,000. If amount is greater than Rs. 2,000 then it should be compulsorily routed through bank. And also according to him cash transactions at high scale is not feasible because the highest denomination currency is Rs. 50.

5. Government should make legal provisions to restrict cash withdrawal i.e. maximum amount of withdrawal should be Rs. 2,000/day. Indirectly, he proposed to make India a cashless economy i.e. making more use of plastics cards, cheques, DD’s, etc.

Advantages:

Savings in the amount of taxes paid, e.g.:

Case 1:  As per normal tax system

Particulars Direct tax Indirect tax Total tax
Income – Rs 1,00,000 0

(as per normal slab rate)

17,000

(Note)1

17,000
Expense – Rs 85,000

Note1 – Taking average rate of 20%. As the lowest rate in IDT was 0% and even some commodities were taxed at the highest rate of 40%.

Case 1: As per Alternate tax system

Particulars Direct tax Indirect tax Total tax
Income – Rs 1,00,000 2,000

(BTT @ 2% on income)

8,500

(Note)2

10,500
Expense – Rs 85,000

Note2– In the new tax system Indirect tax rate will be reduced to 50% of current rate i.e. 50% of 20 percent is 10 percent.

  • No tax return and no compliance cost.
  • Adequate tax revenue for each level of Govt. – Though individual’s tax liability is going to reduce but the number  of taxpayers are going to increase significantly.
  • Transparency in economy – with simplified, equitable and small rate tax system, the motive of tax evasion will be removed.
  • Terrorist and anti-national activities can be controlled – there is a large informal sector in India that is aided and abetted by the presence of cash economy.

Disadvantages:

  • Are the banks reliable enough?
  • If banking transactions will increase – then are we having cyber security in place?

Author Bio

Qualification: Student - CA/CS/CMA
Company: N/A
Location: Pune, Maharashtra, IN
Member Since: 11 Jan 2019 | Total Posts: 2

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