Banking Transaction Tax (BTT) - The Most Revolutionary Reform Waiting to Happen

It is quite some time since Arthakranti.org put forward a proposal to replace ALL taxes by a single tax levied on credit turnover in bank accounts.  As pointed out by them, along with this the amount of currency in circulation has to be drastically curbed to minimise tax evasion.  It has earlier been shown by an IIM professor that even at 1.5% the BTT yield will exceed the total current tax revenue.

In the present system, the vast army dedicated to tax collection notwithstanding, there are serious leakages.  People evade tax either by simply not declaring the correct base figures for taxation at the lower rungs, or through creative accounting coupled with exploitation of all the fine prints at the top rungs.  The cost of maintaining the army of tax assessors and collectors is humongous.  The cost of compliance, maintaining records and reporting too is mind-boggling.  Though, to be fair, it must be said that till now there was no practical alternative to this cumbersome way of taxation.

Today taxes are divided into two categories, direct and indirect. The Arthakranti website prominently displays a cartoon depicting a man carrying two loads at the two ends of a stick balanced on one of his shoulders.  One load labelled Indirect Taxes is much heavier than the other load labelled Direct Taxes.

Will you agree if I contend that this division of taxes between Direct and Indirect is quite artificial and useless?  Any taxes levied on corporates, or any productive entity for that matter, would ultimately get reckoned towards overheads and factored into the prices.  And, in this sense all taxes are indirect and borne by whoever the consumers are.  There are cases where employees negotiate for a salary net of Income Tax and this makes even the most direct tax an indirect tax.  Taxing the credit turnover in bank accounts, BTT, explicitly does away with this artificial classification of direct and indirect.

As collection costs are eliminated, banks can be given a small percentage of taxes remitted by them as commission.  This will have far reaching implications for the banking industry by substantially boosting their fee-based income.  This can help them lower lending rates, something that all governments have been hankering after, by boosting their non-interest income.  This will help commerce and industry without compromising interests of depositors.

Above all, the energy and qualified human resources that are currently committed to discovering and plugging loopholes in taxation laws, and the so-called creative accounting, reporting and compliance, are truly mind-boggling.  All this can be released and can do wonders by being deployed into productive and meaningful work.  This alone is worth a dozen good enough reasons for implementing BTT.

Some objections that may possibly be raised against this novel way of taxation that has the simplicity of genius, will go like this:

• Taxation is presently used as a tool to encourage or discourage consumption of a product by reducing or increasing tax rate on that particular item.  This also comes handy for raising additional revenue from products with inelastic demands.  This can still be done in BTT but would detract from its fabulous simplicity.  Also, taking the example of curbing smoking, prohibition of smoking in public places has been far more effective a deterrent than sustained price rise year after year.  Thus government should use its legislative powers to discourage or ban use of harmful products instead of exploiting public's addiction for enhancing revenue.
• A fear that people my engage in barter is baseless at this level of economic advancement.
• Taxes on imports and exports are also used as tools to promote/restrict exports/import.  I am not fully aware of what the international trade agreements have to say on this.  Exports will, of course, get taxed when proceeds are received in exporters' account. Imports may be taxed whenever an importer's account is debited towards import and the complication of different rates for different items may remain here.  This will be an instance where a debit entry in an account has to be taxed. It will be recalled that BTT is essentially for taxing credit turnover in bank accounts.
• It may be argued that a single rate on all and sundry is iniquitous.  This may be corrected by specifying amount ranges for credit turnover and applying differential rates.
• To avoid multiple taxation, transfers between different accounts belonging to the same customer-id may be excluded from the credit turnover.  To effect it across banks an universal customer-id, such as Aadhaar number, could be used by all the banks.
• Again, it may be argued that not only revenue but capital transactions, like borrowing and repayment, too, will get taxed under BTT.  However, as BTT is very likely to bring about reduction in lending rates by banks as argued in the beginning, this small burden on capital transactions is likely to be more than set off.
• A serious objection to BTT comes from the concomitant demand for drastically reducing currency in the system.  Lower reserve requirements may enable banks to create too much money.  But then this can always be controlled through capital adequacy norms and reserve requirements imposed by the Monetary Authority.

It cannot be emphasized enough that the entire success of BTT depends on drastic reduction in use of currency in the economy.  All notes above ₹50/= must be discontinued.  

There may be some apprehensions against bringing down use of currency in the economy.  One is that in their quest to avoid taxation, people may create alternate currencies or start using precious metals and stones.  It is not very likely to happen in a big way as all ultimate uses will have to be only in proper currency and bank balance only.

What may not be immediately obvious is that unless the cost of electioneering is reduced and funding of political parties is made absolutely transparent, politicians will resist these proposals tooth and nail.  For it is bundles of high-denomination notes, mostly unaccounted money, that are used for these two purposes.

An examination of tax data shows that when it comes to direct taxes, total Income Tax paid by corporates is hardly 1.5 times the total Income Tax paid by individuals. And the whole of indirect taxes, which far exceed the direct taxes, is ultimately borne by individual consumers only.  Thus corporates pay very little tax and almost the entire tax burden falls on individuals only.  Hence it is likely that corporates may raise all kinds of objections to BTT.  However all such arguments will be fallacious because in the final analysis all taxes on a productive entity are indirect only (as long as it is a going concern.)

To conclude, it is currency that facilitates most evils including crime, terrorism and drug trade.  It also facilitates the kind of expensive politics that makes it near impossible for an ordinary citizen to get into it.  The elimination of currency will curb these evils and BTT will release unbelievable amounts of energy and manpower currently committed to the process of tax collection, payment (and evasion) and compliance requirement.  These two can be the biggest game changers for the human race.

Thus there is a need to start a public movement across the globe so that all countries take to BTT and minimal currency use.

Comments requested.

Bangladeshi Immigrants and Swachchh Bharat

A few days ago we had a meeting of the local Residents' Welfare Association.  One member observed that an order has been promulgated by the government for penalizing burning of garbage as a mode of disposal.  Of course, nobody knew of any initiatives for improvements in the current pathetic state of garbage collection and disposal to supplement this notification.  In the absence of such improvements, the notification looks like just cynical buck passing.

At our place garbage is not collected by the corporation directly but by a private agency called "Chamacham Lucknow."  I think most other cities too have similar arrangements.  Chamacham fellows are supposed to take all the garbage to the nearest designated garbage dump from where corporation collects it, though not on a daily basis. The Chamacham people do take the household garbage away once in two days.  However, the fallen leaves, plant trimmings from houses as also the neighborhood park are bulky and Chamacham workers refuse to cart it away.  Instead they collect it in a heap, leave it to dry and then set fire to it.  Often this burning mass also includes bits of plastic and wrappings lying on the road and roadside. This is a major source of air pollution in the city.

As an aside, we all have read in the newspapers that these days the farmers too set fire to the dry plant stalk remaining in the fields after harvesting. Thus burning of plant stalks in villages and garbage in cities have raised air pollution levels to a new high all around.

After the meeting I chanced to meet the local Chamacham supervisor and interviewed him briefly.  This is the picture that emerged from the interview.

He said that there are well paid municipal employees under a supervisor who are supposed to sweep the streets and take away all the swept-up garbage.  Instead they are made to work as domestic servants at bureaucrats' and politicians' homes.  Then many of them do not work themselves.  They hire another person to whom they pay a fraction of their wages.  They also pay another small fraction to their supervisor and then splurge the rest.  After all, why should they work once they have become a government employee: never mind if it is just the LSG (Local Self Government!)  Chamacham people rightly thinks that compensating for such shirking by people who are extremely well paid entitles them to separate payment for sweeping the streets.

Then again, the number of garbage dumpsters has been steadily declining as nobody wants one near his house.  To be sure, it really is a big nuisance.  It will overflow before it is emptied by the autonomous employees.  Dogs and cows will be rummaging through the overflow and adding their own poop to it.  Now who wouldn't mobilize all his resources to ensure that he is as far away from such a place as possible?

Thus inadequate deployment of dumpsters and infrequent emptying of these few dumpsters force burning of garbage as the only means of disposal.

He concluded by adding a note of caution, "People resent the Bangladeshi immigrants. But it must be said that but for them our cities would have by now turned into garbage mountains."

Unless Municipal Corporations are overhauled, rid of corruption and their employees made to work, merely exhorting and goading the citizens will not get us any closer to the Swachchh Bharat of our dreams.  And if we cannot make the employees work, we may have to encourage Bangladeshi immigration, political posturing notwithstanding.

Internet Banking and Travelling Overseas

With steady increase in the NRI numbers, many parents make yearly trips abroad to spend some time with sons, daughters and their "grand" versions.  One issue that inconveniences them is the use of internet banking while abroad. They have to use it for payment of bills as also checking their accounts.

All banks impose use of use-once-only OTP (One Time Password) under certain conditions though the usage is not uniform.  The use is for ensuring that the action is being performed by the genuine account holder who is in possession of his registered mobile number.  The OTP is sent as an SMS on this registered mobile number.  Some banks initiate OTP at the time of login itself if they find that it is being done from an unfamiliar device and location.  While some banks may just have a second password for transactions, others insist on use of OTP for all transactions irrespective of device or location.

The point is that unless international roaming is activated on your Indian mobile number,  you may not be able to make use of Internet banking.  International roaming is not only expensive but also not as easily available as national roaming.  BSNL does not provide international roaming to its prepaid customers.  Airtel does, but not to customers in East UP circle: This gets my goat as I reside in this circle.  And then this roaming can prove to be very expensive if you were to respond to an incoming call by mistake.

I had found a solution for this.  I put an app 'Relay ME' on my phone.  Then I would leave my phone in India with someone who could ensure that it is kept charged and connected to the network.  The app relays all received SMS to an email address configured in it.  This did the job without having to go for international roaming.

Now many banks have introduced 'active token' for generating the OTP instead of receiving it from the bank.  It is done through an app on customer's smartphone.  The OTP can be generated whether or not you are in the coverage area of your GSM operator.  However your SIM which has the mobile number registered with the Bank, must be present in the phone. Presto! carry your SIM with you and forget about international roaming.  As long as you have a wi-fi connection you can carry out Internet banking unhindered.

Activating the "Token" app is just a little bit tricky.  For this purpose you have to log into your Internet banking account, preferably on another device while activating the app on your smartphone.  Also you must install the app on the phone which has the SIM for the registered mobile number.  You will receive an SMS which will have an URL for activation and you have to click on this URL on the phone having the app and the SIM.  However all the hassle is worth it.

Finally, having your Bank's mobile banking app on your phone also helps.  It allows you to login and transfer funds without OTP.  However when you are being redirected to bank's Internet banking site by an online merchant, you may have to resort to the "Active Token."

Do share your experience if you have been using an active token for banking transactions.

Bank Nationalization in Retrospect

Banks were nationalized by Mrs Indira Gandhi with much fanfare.  It was done with a view to replace the class banking practiced by the then private banks with mass banking.  Currently the term mass banking has been replaced by a more sophisticated one, that is, financial inclusion.  This was a laudable objective indeed and still remains laudable and only marginally fulfilled.  Else, why would there be such hue and cry about financial inclusion after more than 4 decades of bank nationalization?

Looking back, it seems very clear that this was a master stroke by the shrewd political class for helping crony capitalists drain the public exchequer.  All talk about mass banking was merely a facade.  The unfulfilled mass banking agenda is being now carried forward for setting up smaller banks with limited functionality like payment banks etc.

In a recent TV debate on the Mallya debacle, one of the speakers pointed out that it is generally believed that the global banking crisis a few years ago left India untouched.  While governments world over had to pump in huge amounts of money to rescue some of the banks, nothing of the sort had to be done in India.  He went on to say that this is fallacious.  According to him Indian public sector banks face this crisis every year because of large loans being written off and large sacrifices being made for corporate debt restructuring etc.  And they are rescued each year by the government by recapitalizing the banks.  Thus nationalization did not help the agriculturists or the poor common man so much as it helped corporates having good liaison with the politicians to milk the public exchequer.  To be fair it must be said that the banks merely served as a convenient conduit.  But has the conduit too been damaged in the process?  We may have to wait for some more time to find out.

This must be the reason why politicians of all hues, and not merely the leftists who control the trade unions in these banks, have no real interest in privatizing the banks.  Though, it must be said to their credit that they do occasionally make the right kind of noises in this matter.

The massive fraud, which perhaps overshadows all other mega scams thus far, has now been uncovered and the astronomical amounts involved are staring us in the face.  I do not know if the sums involved are giving the government a cold feet too.  Do they still have the capability to recapitalize the banks to the extent required?  Or is the ground being prepared for the depositors to take a haircut?

As a retired person living on his precious savings and interest thereon, the very thought gives me the shivers.

A debate between Zakir Naik and Srisri Ravishankar

Recently while wandering on the net I came across a video which showed a full program featuring a debate between Zakir Naik and Ravishankar.  The duration of the video was a little over two and a half hours.  Though the video was found on YouTube itself, it proclaimed "has been deleted from YouTube" alongside its title.  I watched the entire video with keen interest and mulled over it.  Later I tried to watch the video again, but failed to locate it.  I clicked the history item in the browser and YouTube, but to no avail.  During my repeated searches, I also came across a message on YouTube saying that the content has been removed.  It seems that someone had succeeded in reloading the video and I was lucky enough to watch it before it was removed again.  Fragments from this video are still available, but not the complete video that I had the opportunity to watch.  I feel truly sorry that I cannot give you an URL for watching this video.

I must say that the person entrusted with conducting the debate in an orderly manner did an excellent job.  Zakir Naik (ZN) - I am not prefixing Dr as he does not seem to be in that profession any more - came across as a seasoned speaker and debater.  RaviShankar (RS) - I am not prefixing SriSri as it sounds a bit too pretentious - surprisingly found the time allotted to him a little too long.  He also seemed to be ill at ease and a bit fidgety at times.  Once or twice he interjected too while ZN had the floor, which was perhaps against the format.  He got a bit provoked when ZN pointed out some errors in a book authored by him and admitted having made mistakes. But more about it later.

The speed at which ZN quotes book number, chapter number and verse number from a large number of scriptures from various religions, bears out an amazing memory and considerable breadth of his knowledge.  However he seems to be lacking in depth.  He repeatedly quoted from Vedas and Bhavishya Purana to make a point that the arrival of prophet Muhammad was foretold in these books.  Of course, I cannot recall the exact references that he gave.  He harped on three words, Muhammad, Nrishans and Mlechha, found in the Hindu scriptures.  He said that these pointed towards the prophet.  Mlechchha, according to him, merely meant a foreign origin, and Nrishans meant a Nar (man) worthy of adoration (Shansa being the tail end of Prashansa.)  This ignorance is shocking indeed.  Had he known the true meaning of the two words, he would refrain from using these words for the prophet: for it will be blasphemous to do so.  Nrishansa, as all students of Sanskrit and Hindi know, means merciless and cruel.  Making it out to be a combination of Nar and Shansa is far fetched indeed.  Similarly Mlechchha, though associated with persons of foreign origin in a sense, is a highly derogatory word that means impure or unclean.  The same applies to the word Mahaamad, which ZN takes to be Muhammad.  Mahaamad is a derogatory word that means a conceited person with an overarching ego and insolence.

ZN's ignorance could be excused but for the delight he and his followers take in his rattling off references to verses in various scriptures and then presenting their translation with an air of absolute authority.  However what really surprises me is the fact that neither RaviShankar nor anyone from the huge audience pointed out these errors nor did anyone stop ZN from making blasphemous references to the prophet.

Another favorite argument of ZN, one that he presented in this debate too, is that Vedas and Upnishads all say that God is one and formless.  And this is precisely what the Quran teaches. He takes Vedas and Upnishads to be the counterparts of Quran in Hinduism. Then he concludes that we should be worshipping God, the creator, and not the created.  But Hinduism is not restricted to such a single linear strand of thought.  It is more like a container of objects rather than an object itself; maybe a Pandora's box.  It also has in its kitty the Samkhya which maintains that there is no God.   It maintains that there are just multiple Purushas (consciousness principles,) each interacting with Prakriti.  Vedanta chooses not only to combines all these Purushas in one ParamPurusha but also merges the Prakriti with it.  Dualism and non-dualism both exist as valid philosophies and the debate goes on.  For the non-dualists, nothing exists but the God.  There is no distinction between the Creator and the Created.  The Creator, the Creation and the Created are all one.  The differentiation is just Maya and that too is an aspect of the only reality, the Godhead.  So in this container of Hinduism, monotheism, atheism and pantheism, dualism and non-dualism all co-exist and it sees no problem with such co-existence.

Thus any religion on the face of this earth could find parallels in one object or the other in the box called Hinduism.  And yet, any religion that wants to build bridges with Hinduism need not demonstrate any similarities.  Just a willingness to reside in the container is enough.  When you meet someone holding a view that is diagrammatically opposite to yours, don't scowl and growl, just wink and smile.  Yes, I understand and I am sure so do you.  Just accept the diversity and be at ease with it. It is this ability to wink and smile, rather than your belief system, that makes you a Hindu, or Hindustani, if you please.

Having said that, I must add that all is not hunky-dory in this container.  This container also has, for example, the most divisive and discriminatory caste system.  This single anomaly is beating down at the walls of the container to break it down.  There are many others too.  If a confluence of different and differing belief systems inside the container could join hands to cast away the toxic contents in the box, there indeed would be an utopia in this wonderful container.

PS: If you can find the deleted video on the internet, please post the URL as a remark to help other interested readers watch it.

Why Interrogate Bankers Alone?

By now the number of times the name Mallya has been spoken or written must be running into millions.  It is there in the media - print, electronic and social - as well as serious debating platforms like the parliament.

The name appears in conjunction with banks, previous Congress government (CG) and the current BJP government (BG.)  Though I have not carried out a statistical analysis myself, I suspect that if you were to do so, you will find the number of times it is associated with CG or BG exceeds the number of times it is associated with banks.  In the debate in the parliament, charges were traded between Congress and BJP as to who was in power at those points in time when the loan was sanctioned, renewed and finally the borrower allowed to flee.

Neither CG nor BG tried to make a point that banks are autonomous and the government does not try to influence their commercial decisions.  I wonder if this tantamounts to a confession by both of the top two political parties of India.  And if it is so, two questions arise.  Does it seem likely that anyone in IDBI or any other bank could demand a gratification if a directive was received from the party in power?  And the second, why is ED not calling FM officials too for questioning?

Banker friends may like to comment on this.

BSNL's contempt for DND

I have a prepaid mobile number that was ported to BSNL quite some time back.  It was under DND with the earlier operator and I had registered it under DND soon with BSNL too after porting.  As unsolicited messages kept pouring in, I called the BSNL customer care number and complained.  I was told that my number is already under DND and was advised to register it once again.  Since then I have sent the START 0 message two times and each time the response told me that START0 was already active. Just in case you are wondering about the zero, you are allowed to choose from 7 alternatives and of these 0 means stop ALL.

The messages that I continue to get are messages whose senders' names are prefixed with BP, BT, AD, DM, MD, IM, BW, VK, BH, MM, BZ, DZ etc.  Occasionally there is a broadcast flash giving a number and enquiring whether I would be interested in friendship.

As normal channels for voicing my complaint had been tried out, I wrote to the Ministry for Communication and IT.  They promptly forwarded my complaint to CMD of BSNL and also DOT for immediate resolution.  As nothing happened for a week, I wrote to all the three parties again - MCIT, BSNL and DOT.  MCIT has again promptly forwarded it to the other two parties who are yet to wake up.  I have also written to TRAI in the matter today.

If you too have a BSNL number, I would like to know whether this suffering is universal for DND lovers or peculiar to my case.  If it is universal, how do we seek rectification?  I may add that DND is working wonderfully on my Airtel number.  It is surprising to find that private players are more ethical / rule-compliant than a public sector counterpart.