What did Baba Ramdev say?

(image source:indianexpress.com)

Let’s pick up from where we left last week. In last week’s post “What did the PrimeMinister say?”, we saw that one of the more noticed statements of the PM was that it would be disastrous for the country to have Shri Narendra Modi as PM. Defending Mr. Modi, Ramdev said that it was the Congress party which was disastrous. The reason cited by him was that the wrong economic policies of the Congress had resulted in inflation (increase in prices). He went on to present his economic vision for the country, the central theme of which was the abolition of all taxes in the country. This week, we take a look at the issues connected with his proposal.

Who is Baba Ramdev?

Ramkrishna Yadav, or Baba Ramdev as he is popularly known, is primarily a Yoga guru.

Why are we talking about him if he is just a Yoga guru?

We need to pay attention to what he says because of late, he has become quite vocal about political issues. He is a known supporter of Mr. Narendra Modi, the PM candidate of the National Democratic Alliance (NDA) (the coalition headed by the BJP). And recently, Mr. Modi shared a stage with him and joined him in saying that the taxation laws of the country were a burden on the common man and needed to be reformed. Interestingly, an NGO, in the presence of Baba Ramdev, gave a presentation to top BJP leaders (including Mr. Modi) in the capital regarding this issue and the BJP is said to be seriously considering the inclusion of a similar proposal in its Vision Document 2025.

This brings us to Baba Ramdev’s proposal on taxation.

The proposal is very simple. It seeks to abolish all kinds of taxes in the country, except the custom/import duty (the duty that is charged from people who bring goods from abroad into the country) and replace them with a single Banking Transaction Tax (BTT). But as they say, “The devil lies in details”, so let us dig a little deeper and look at it from various points of view.

From the view point of an individual:

·         The first argument in favour of the BTT is that it will make the taxation procedure hassle-free for the people. No longer would you have to call up your Chartered Accountant on the night of 14^th December (15^th December being the last date for payment of one installment of Advance Tax). No longer would you have to worry about the filing of returns. No longer would you receive a letter from the Income Tax department demanding more tax. All this would be possible because if the proposal is implemented then a charge of 1-2% would be deducted by the bank on each transaction that would be routed through it.

But then this same feature of the tax has a disadvantage also.

·         From an individual’s point of view, this is a regressive system of taxation. At present, not everyone who has an income source has to pay tax. Also, there are various slabs which determine how much tax you have to pay according to the level of your income. But with the levy of BTT, no matter who you are, if you receive some money in your bank account, you will be charged the tax at 1-2% of the amount. And a 1-2% charge on a person who earns Rs.1000 is certainly much more burdening than a 1-2% charge on a person who earns Rs.100000.

From the view point of the Government:

·         BTT would lead to higher revenues for the Government. This is on two counts. Firstly, it would reduce collection costs to almost nil. Secondly, the proponents of this theory say that there would be less tax evasion as all banking transactions would fill the Government’s coffers without any doubt.

      However, the opponents of BTT argue that this is not true.

·         Firstly, India is not a country where each and every person carries out all transactions through banks. So the tax base (the number of people who are liable to pay tax) would widen just theoretically. Practically, it would actually narrow.

·         Secondly, there would be more cases of tax evasion as even those who used to bank their incomes would shift to cash transactions to avoid the tax. Even if cash transactions above Rs.2000 are declared illegal (as proposed by Ramdev) and all higher denomination currency notes like Rs.500 and Rs.1000 notes are withdrawn to reduce tax evasion, this will lead to the creation of a parallel black economy which the country cannot afford.

So will this actually happen if the BJP comes to power?

Having looked at the proposal logically, it is now necessary to look at the views of the politicians regarding this, especially the decision makers in the BJP in order to assess what can happen if the BJP were to come to power.

Nitin Gadkari, former BJP President, and presently, the man who is the Chairman of the committee which is drafting this Vision Document, 2025 has openly talked about seriously considering this proposal. But the latest information is that Mr. Arun Jaitley, the Leader of Opposition in the Rajya Sabha (Also, a lawyer by profession and a Commerce graduate from Shri Ram College of Commerce, Delhi) has said that the proposed changes could blur the distinction between the rich and the poor. The poor would end up paying the same amount of tax as the rich. Mr. Yashwant Sinha, former Finance Minister of India (from the BJP), also reportedly disagrees with Mr. Gadkari who is trying to woo the middle class with this ‘seductive at first sight’ promise of abolishing taxes.

In the end, it remains to be seen whether reforms of the present taxation structure are proposed or a complete overhaul is promised.