What is the proposed Banking Transaction Tax?

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What is the proposed Banking Transaction Tax?
The Banking Transaction Tax (BTT) is proposed to replace all other taxes in India apart from the customs duty which is levied for import and exports of goods and services. The government of the country since long has been trying to simplify the tax structure as well as administration governing the rules of taxation. In this regard, the proposal of implementation of Direct Tax Code (DTC) in lieu of the direct tax and Goods and Sales Tax (GST) for the indirect tax have long been pending.

As proposed, for each banking transaction that is undertaken by an individual, more precisely credit of funds shall attract a proposed tax at the prescribed rate. The move can lower an individual's hassles as for each of the transaction an individual shall need to dole out only few bucks as tax to the government. So, the tax burden at an individual level shall greatly be lower as the small rate of such tax is found to be apt to meet government revenue requirements, as it would boost compliance and hence revenues. But the final implementation of the proposed tax would require deeper penetration of the banking system in the country.

Other than the implementation of the BTT, a proposal to the effect was made to remove all currency in higher denomination such as those in Rs. 500 and Rs. 1000. Also, cash transaction for an amount over Rs. 2000 shall not be given any legal validation.  The proposals could in effect strengthen the tax structure and make it more efficient with the resultant increase in government's tax revenue drastically in comparison to what it currently manages to collect. Also the conceived idea which is rather implemented in other countries along with other relevant taxes shall work towards curbing high degree and prevalence of tax evasion, money laundering and black money.

But like other systems that have been proposed to increase the effectiveness and efficiency of the system, the tax structure can in turn prove to be detrimental and defeat its sole objective. As with it many could stop undergoing transactions through the banking transaction to avoid their tax liability or can also begin exchange of goods through the age-old barter system. Also, a major drawback that can still widen the existing gap between the rich and poor class shall be the imposition of the tax at he same rate.


Story first published: Wednesday, February 19, 2014, 13:03 [IST]
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