Optimal Tax

Abstract:     
In the present system the budget preparation is massive, multi-staged, time consuming and laborious process. There are thousands of different high or very low valued goods or services to be segregated into different groups and taxed by both Centre and States with different taxes at three or more slab rates and, as if these are not enough, there are additional surcharges or cesses on selected goods. These tax structures and slab rates on different goods keep changing every year. With these complicated tax structures and ever changing slab rates every year, the tax compliance by individual manufacturers, dealers and retailers has been difficult, cumbersome and bothersome. Taxes are being collected by different tax collection departments based on the accounts maintained by individuals who run industry or business. There is plenty of room for understatement of production, sales, tax evasion and consequent by-product of black money.

But in the suggested TOP Tax system all Direct and Indirect taxes will be replaced with only single tax called TOP (Transfer Or Purchase) Tax with fixed/stationary slab rate of 4%. This TOP Tax will be imposed on all money transfers from one account to another account through cheque, debit card and online transfer/net banking in the purchase chain of consumers, retailers and manufacturers. The Transfer Or Purchase TOP Tax (4%) will be deducted automatically by computer systems of banks on all money transfers from one account to another account irrespective of the fact that for what purpose (purchase/donation/salaries/loans) and by whom these money transfers have been made. So the revenue collection for both Centre and Stated Governments will be instant, automatic, prompt and continuous process throughout the year with no room for tax evasion. There will be absolutely no tax collection expenditure. So the budget presentation will become simple, smooth and time saving. Or even there will be no need for budget presentation each year. Hence, the yearly budget presentation can be solely utilised for allocation and channeling of those automatically collected TOP Tax and Profit Tax revenues by banks to various sectors like housing, health care, education, drinking water, transport, irrigation, agriculture, environment, sanitation, infrastructure projects, rural development, defence and internal policing. The government structure and machinery can be restructured, downsized and fine tuned not only to reduce wasteful expenditure but also to cater to the basic needs of people concerning housing, health care, education, sanitation and drinking water. To say briefly, the Government’s entire concentration and top most priority will shift from taxation, tax collection and enforcement to implementation of welfare schemes and development of infrastructure projects.

The TOP Tax system's tax collections (TOP Tax and Profit tax) for Government and tax payments/tax compliance by all citizens will be totally automatic and involuntary just like respiratory system in human body. Every account (MSA/SSA/CAN) is an involuntary taxpaying account. Citizens need not maintain separate account books and submit tax returns annually for paying either Direct taxes on personal incomes or Indirect taxes while running business or industry.

Number of Pages in PDF File: 58

Keywords: Optimal Tax, Taxes, Revenues, Single Tax System, Redefined banking

JEL Classification: H2, H21, H61

working papers series