Ramdev-Modi tax reforms: A revolutionary idea or just a poll gimmick?

With the Ramdev-BJP combine advocating abolition of a plethora of taxes by bringing about a complete overhaul of the existing tax regime, the salaried middle class is more than happy. But it has certainly left experts pondering over the feasibility of the proposal. Many call it just a populist announcement to woo the aam admi before general elections.
Sharing the dais with yoga guru Ramdev, BJP's prime ministerial candidate Narandra Modi had recently said that the present taxation system was a burden on the common man and there was need to introduce a new system. This has set off a debate.
Chartered accountant and tax consultant Manindra Tiwari is of the opinion that it's a revolutionary idea, which will boost Indian economy as such a system has benefited several countries.
"As per our Budget estimate for 2013-14 income tax collection will be Rs 2.47 lakh crore and service tax collection for the same year will be Rs 1.8 lakh crore. If we switch over to banking transaction tax, it will definitely help us, though there is no concrete estimate of the revenue that the new tax regime will generate," says Tiwari.
India's total tax collection in the financial year 2012-13 was Rs 6.97 lakh crore. While about Rs 3.69 lakh crore was collected in direct taxes, over Rs 3.28 lakh crore was mopped up through indirect taxes.
"Lateral benefit of this alternate method will be reduction in number of tax related litigation. According to a Comptroller and Auditor General (CAG) report, tax litigation at various levels had approximately Rs 2.2 lakh crore locked and thus rendered useless till the end of 2008-09," Tiwari adds.
However, there are others, who are not much optimistic about the proposal. The BJP's idea of replacing the current tax system with a uniform banking transaction tax will end the progressive nature of the tax paying system, bringing both the high income and the low income groups in the same category.
Preeti Lakhera Srivastav, who teaches taxation laws at the National Law University, Dwarka, in Delhi, does not see much merit in the proposal.
She says: "Progressive taxation system is perhaps the best concept for a country like ours. To say that it should be replaced with a tax regime based on banking transaction tax may not be an idea for India. There is reasonable doubt over its efficiency."
"The proposal from the BJP and Ramdev seems to be an attempt to circumvent the Direct Tax Code (DTC) which is yet to get Parliament's approval. DTC provides for a broad-based tax regime and could be tough on faltering businessmen. The BJP may just be playing to the gallery," says Srivastav.
"Farmers in India are still not liable to tax. The plight of the small farmers is well known and by imposing banking transaction tax the government will make agricultural loan more costly," says tax expert RN Marwah.
The UPA government had introduced 0.1% Banking Cash Transaction Tax (BCTT) in 2005. However, it was abolished in 2009. The levy, as per the revised estimates, contributed to the exchequer just Rs 600 crore during 2008-09. The BCCT collection was Rs 550 crore for 2007-08, much less than the total revenue generated through income tax.
"The need of the hour is to plug the loopholes of the present tax regime, which still functions on the principle of voluntary compliance," emphasizes Srivastav.