Book Review

Published: Dec 29, 2021
Updated: Dec 29, 2021

BTT – a recipe for financial disaster

At a time when the country is valiantly battling the Covid-19 epidemic, the governments – both at the Centre and the states – are understandably hard-pressed for resources, and it is but natural that they look beyond the usual conventional taxation measures for raising funds. One such measure is the suggestion of a banking transaction tax, which the Centre had seriously considered a few years ago. While the measure was, thankfully, not implemented, one cannot be very sure if it has been totally given up and placed on the backburner, especially as the fiscal situation has not only not improved but has actually worsened. Hence, the publication under review is very relevant, timely and useful.

The author, Dr VVLN Sastry, who has a doctorate in banking and is a prolific writer with well over 1,000 published articles to his credit, is a regular contributor to several papers and magazines, including Corporate India. Besides, he has published several books on banking, finance, economics, law and Information Technology. With over 2 decades of experience in the field, Dr Sastry has brought to bear his profound knowledge in the subject of taxation and very coherently argues why this taxation measure should not be implemented. According to him, the banking transaction tax (BTT for short) is a ‘bad tax’ and should not be introduced at all. He avers that the measure, suggested as a replacement for all the existing direct taxes in India, would in fact have the ‘opposite effect’ and not solve the country’s financial woes.

Tracing the history of the proposal to Pune-based economic think-tank Arthakranti, the author points out that the taxation measure was intended to be useful inasmuch as it would help replace many of the existing taxes in the country. With banking transactions becoming popular amongst all sections, its proponents argued that more people would be coming into the tax net. The introduction of the tax would be in 2 phases – the preparatory phase and the implementation phase. In the former, a comprehensive study has to be carried out to identify and study its impact at the micro level. Banks, on their part, have to invest in in the technology required for the efficient management of the tax. They have to invest in infrastructure in areas where their penetration is poor, and citizens have to be advised about the features of the measure.

BTT’s proponents have further argued that the measure should be combined with demonetisation. Now, with demonetisation already carried out and the country still recovering from the economic shock waves it brought about, the tax’s introduction at this stage would not serve the intended purpose. The avowed intention of the advocates of BTT is to gradually phase out all direct taxes like income-tax, both at the personal and corporate level. But then this is not so easy to achieve and the net result would be disastrous, to say the least, for the economy. Doing away with customs duty and other indirect taxes and replacing them with BTT would also not be helpful. The author has painstakingly provided a detailed analysis of how and why the existing taxes should not be tampered with and replaced by BTT. Even subjecting people in all tax brackets to a BTT rate of 2% would have a very big negative impact on people with low incomes.

According to Arthakranti, BTT is quite easy to implement, especially in India as it has taken to computerization in a big way and almost all banking transactions are conducted electronically in a fast and efficient manner. Introduction of this tax, it is argued, would help in eliminating tax evasion. This is because there would be no practical way of evading taxes, and this feature is touted as one of its main advantages. They argue that with the introduction of BTT, conventional taxes presently paid by corporates and other economic agents would not be necessary, and companies would not resort to transferring their money to offshore tax havens and consequently flight of capital from the country could be prevented or reduced. Such monies could then be used for developmental programmes in the country.

ZERO BENEFITS

However, the author firmly believes that the benefits from BTT are only on paper and actually difficult to achieve. ‘Our people’ are quite adept in finding ways of evading rules and regulations and inventing methods to circumvent tax laws. Actually, the cascading effects of the tax would have unequal impacts across different sectors in the economy. Incidentally, the country has just begun to show small signs of recovery after the prolonged effects of demonetisation, ill-planned implementation of GST (Goods and Services Tax) and the crippling effects of the corona epidemic. And introduction of any such measure would have a totally negative and opposite impact. Giving a detailed case study analysis of the pros and cons of BTT, Dr Sastry has strongly refuted the arguments of Arthakranti favouring the measure. More significantly, if such a measure is introduced, it would discourage people from taking to the banking habit and they would prefer cash for all their transactions. And this is definitely not the government’s intention. Hence, he urges the authorities to totally give up this idea and not even think of it.

The author has put in considerable effort to give the ordinary lay citizen everything he ought to know of this taxation measure. However, it is felt that he could have come out with some other alternative suggestion or taxation measure for the resources-starved government. Nevertheless, it is earnestly hoped that the authorities pay due attention to his forceful pleas and abandon all plans for placing such a law in the statute book in the future.

-   Bookworm