Business Today

"We want to abolish all taxes"

twitter-logoJoe C Mathew | Print Edition: December 18, 2016

Arthakranti Pratishthan, an NGO based out of a nondescript rental flat in a predominantly residential Rambaug Colony, some 20 km from Pune Airport, is now gaining global attention. Considered to be the brain behind Prime Minister Narendra Modi's move of scrapping old Rs 500 and Rs 1,000 notes, the think tank stands for a complete overhaul of India's taxation system. In an exclusive interview with Joe Mathew, Anil S. Bokil, an engineer-turned-economic thinker, the chief architect of Arthakranti Proposal, talks about the merits of demonetisation and how it can lead to a black money free-cashless economy, if the government adopts all of the NGO's proposals. Excerpts:

How do you see Modi government's surprise decision to demonetise high value currencies?

Modi is moving in the right direction. The previous government couldn't do it because it didn't have the absolute majority. This is a strong and stable government and, hence, the decision. Demonetisation is a revolutionary step. The cost of printing one Rs 1,000 note is about Rs 3.5. Which business is more lucrative than printing something that costs so less, but gives a value so high? That is why Pakistan has been printing and circulating counterfeit notes. That made the Indian economy so fragile. We could have managed to live with corruption for some more time, but I believe the Modi government had to act fast due to some serious security threats. Before demonetisation, Modi had talked to all service chiefs. We are linking our perception to that development. That is what perhaps made Modi take this surprise decision.

One can understand if the government had withdrawn high-denomination currency notes completely. Here it is merely replacing old notes with new ones. It is also introducing Rs 2,000 notes. On the face of it, apart from temporary demonetisation, there is nothing to suggest that it can make any difference. Do you agree?

We see the re-introduction of new currency (notes) only as a provisional measure. Demonetisation is a shock. Everyone is feeling insecure. Bringing in new notes will cushion that shock. We believe the government will get back to our original plan of demonetisation soon.

What is Arthakranti Proposal? Did you meet the Prime Minister to discuss your idea?

I met Modi when he was still chief minister (of Gujarat). He was nominated as the Prime Ministerial candidate and he was fairly confident of getting absolute majority at that time. He had given some 15 minutes time for us to make a presentation. But after listening to me for over an hour, he asked me what needs to be done (for a complete overhaul of the Indian economy). We suggested that all taxes should be withdrawn and replaced with a single banking transaction tax (BTT). The next step was to demonetise high-value currency, followed by taking away legal sanctity of high-value cash transactions. He wanted to know whether an action on currency (demonetisation) should come first or an action on tax (withdrawal). For me, currency demonetisation is like an operation, which can be carried out after giving anaesthesia (withdrawal of taxes). Modi carried out the operation without giving anaesthesia, and I believe it was warranted by some grave circumstances.

"Demonetisation was one of our proposals. And that has been considered. Other proposals will follow. Conditions and technology are also favouring Arthakranti as India is fast moving into the digital economy"

How do you prevent black money generation as people will continue the same practices by using the new currency also?

Arthakranti is the only solution.

Is the government seriously thinking on these lines? Is there any reason to believe that the current decision was based on its intention to pursue Arthakranti?

There is some momentum now. Demonetisation was one of our proposals. And that has been considered. Other proposals will follow. Conditions and technology are also favouring Arthakranti as India is fast moving into the digital economy. So, penetration of M-money or digital money and digital transactions are all very much in tune with our proposal. The biggest opposition should have come from politicians because they have been functioning on the black money platform for a long time. That has been overruled. That hurdle is over. The world is beginning to recognise the merits of our proposal. We are getting invitations from universities outside India to present our model. Indian Institutes of Management, BITS are calling us. That is because the most critical part, the move towards currency demonetisation, has already happened. The rest is very simple.

Is BJP top brass supporting this view?

At least six prominent Cabinet ministers are supporting this move. Sushma Swaraj, Rajnath Singh, Nitin Gadkari, Suresh Prabhu, Manohar Parrikar and Prakash Javadekar are totally with us. As a society, we are pushing it. Baba Ramdev is very much interested. In just one sitting he understood the gravity of the complete proposal. Sri Sri Ravishankar ji has openly supported the idea. Subramanian Swamy, an economist, is totally convinced.

Can your proposal co-exist with GST, the countrywide single indirect tax system that is expected to get operational by April 1, 2017?

No. Then that will not be our proposal. Arthakranti can be implemented in phases. To begin with, the government may take out the personal income tax in the first phase. And it may introduce a 0.1 per cent or 0.2 per cent BTT. Once the Centre convinces the states, it can proceed further. That will be in tune with Arthakranti, but not the complete proposal. We want taxes to be withdrawn in a phased manner. The transition phase that we have designed is over a period of 18 months. We are giving a philosophical, logical framework to the government. The government is now looking at it.

But GST is to become a reality by April 2017. How can you ignore that fact?

GST will only complicate our tax system. Government and media are propagating GST like a magic wand. What they don't say is that the most populated country, China, does not have GST. The most powerful country, the US, has already rejected it. It is a wrong model. No highly populated country has adopted it. It is not yet operational. There is always a possibility that it may not become operational too. When the group of chief ministers meet next, they should be told about Arthakranti system that will generate more revenue than what one gets today. They should also be told that whatever be the shortfall, it will be compensated, as is being promised under the current GST proposal. Revenue sharing can also be worked out by following the recommendation of the Finance Commission. Implementation of Arthakranti does not require any constitutional amendment as it is well within the constitutional framework. The revenue administration will be independent as tax collection is automatic and not dictated by the Centre.

Why is BJP government going ahead with GST then?

My perception is that the NDA government under Vajpayee brought in the concept of GST and successive governments have progressed so much that it is difficult to abandon it mid-way. But that does not mean that it will be the preferred model and it will be in place. I cannot say whether GST will happen or not. All I can say is that only a better alternative can stop GST, and Arthakranti is the best. GST provides a mechanism for transition. One can utilise the same transition mechanism to move to Arthakranti.

So, what do you propose?

We want to abolish all taxes, except customs duty, which is needed to control imports. Government revenue should come from BTT.

Can you explain?

Only receiver pays. The moment some money is credited in your account, a percentage of that goes to the government exchequer as BTT. It is that simple. If you go by today's bank transactions, a 2 per cent tax can generate Rs 20 lakh crore. If you add another Rs Rs 2 lakh crore as custom collection, it will be Rs 22 lakh crore. And it is a very conservative figure. It is very close to the total revenue collection of the Central government today, which is Rs 24 lakh crore. India is the only country where bank money is only a fraction of the total money transaction. Once it changes, these figures will improve.

But India has a large informal economy which is outside the traditional banking system?

Arthakranti is a capsule. It is a set of several proposals. BTT is one. It should be followed by demonetisation of all high-value currencies, preferably above Rs 50 in due course, in a right manner, in a designed structure. Going by the global poverty line of $2 per day consumption, which means around Rs 130 per day, 70 per cent of Indian population is below poverty line. Then why do we need

Rs 500 and Rs 1,000 currencies? About 86 per cent of the value of our currency is locked here. Let Rs 100 be the highest denomination.

By asking everyone to pay the same percentage as BTT, are you not discriminating against the poor? Is not income-based tax progressive in nature?

We are not talking about rate. We are talking about proportional tax. It is not regressive or progressive. Proportion is different from rate. (Finance Minister) Arun Jaitley has also misinterpreted this. He has confused everybody. We are not talking about the same rate; we are talking about same per cent.

The problem is that while a high-income person may not mind to set aside 2 per cent of his total earnings, that would mean a lot for someone who is barely making both ends meet?

Even today, the poor is paying indirect taxes. But that will be gone if it gets replaced by a single BTT. Further, payment of tax adds to the credit worthiness of poor. Let everyone be worthy of credit. He will get more credit than what he pays as tax.

Former finance minister P. Chidambaram had proposed a withdrawal tax. Is it in any way similar to your plan?

No. That proposal was to tax cash withdrawals. It would have been counterproductive as people would have preferred to keep the entire money outside the banking system, thereby creating a huge parallel economy.

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