Wednesday, November 22, 2006

here's one way of ending corruption!

i was introduced to anil bokil in an article written by sandesh kirkire (ceo of kotak mutual fund) called 'abolish all taxes and kick out corruption'. this was a revolutionary idea proposed by anil bokil and i was intrigued enough to get more details from his website -

some of the startling facts mentioned in sandesh's article include :
- the fact that less than 3% of india's population pay taxes.
- the fact that mumbai's population is 1.2 crore but has only 17000 taxpayers with income above Rs.10 lakhs.

in this context the article mentions the proposal suggested by anil bokil which seems deceptively simple and is definitely 'out of the box'. what it does achieve is getting you to think and wonder if there is a catch in it somewhere.

the key highlights of the proposal are :
- abolish all taxes in the country except import and customs duties.
- remove all currency notes above Rs.50 denomination from the system by asking all holders of this currency to deposit it in the bank.
- make it mandatory for all transactions above Rs.2000 to be done through the banking channel, i.e. through cheques, or credit/debit cards.
- introduce a flat transaction tax of, say, 2% on every transaction in the banking system in the recipient's hand.
- such tax amounts recovered to be transferred daily to the central government, state government, municipalities in a pre-determined proportion at a fee.
- cash transactions of a lower value not to attract any transaction tax.

some of the implications of this proposal are :
- reduction in actual tax paid by tax-payers; but increased tax collection by the government
- tremendous pressure on the parallel economy which thrives on the large denomination currency notes (ever wondered why you do not see the Rs.1000 denomination notes?)
- huge growth of the banking industry - higher deposits; rise in banking transactions; easier accessibility to funds for lower credit borrowers; cheaper sources of finance for the rural economy.
- fall in inflation since taxes/duties make up a huge component of prices of all goods/services
- resultant growth in demand for manufacturing sector
- complete removal of the entire bureaucracy managing the tax processes; also huge savings of time spent on tax management by corporates and tax payers

though this proposal sounds fantastic there are many questions and issues it raises :
- the parallel economy would move onto other foreign currencies like dollars
- the banking system would need to be geared to handle this enhanced role; it would also need to be able to reach out to a much wider audience than it does today
- even though funds would be available at lower rates it would not necessarily translate into credit for the farmers and lower credit rating borrowers; such segments which today depend on the cash economy would be starved of any funding
- the huge inflows of liquidity into the system (especially in the beginning when cash is converted into bank deposits) would put upward pressure on inflation
- government spending would still not necessarily become more accountable or efficient
- and most importantly - 'where is the political will to carry through such a revolution in the country'?

but what you cannot deny is the simplicity of the idea, and the fantastic scope of the vision behind this proposal.

i believe that with this proposal mr. anil bokil has at least suggested some solutions and has made me sit up and think. and that, in my eyes, is far better than my just griping about the problem of corruption!

do you have any similar, 'out of the box' solution to this problem?

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