TOP Tax syst em
t hat runs on limit ed paper currency and demat erialised money w ill have five dist inct advant ages over present syst em w hich runs on huge paper currency.1. Limit ed paper currency at a low denominat ion value w ill ensure t he t ot al ext inct ion of fake currency. 99.4% of t ot al money supply w ill be in digital form only 0.6% in physical currency
2. Black money w ill also meet t he same fat e as people w ill be forced t o t ransfer money from one account t o anot her account t hrough cheque, debit card or online t ransfers for all t ransact ions for personal or business purpose.
3.Ransoms, ext ort ions, bribes, robberies and all illegal act ivit ies w ill come t o an end as huge exchange of currency at high denominat ion values w ill not be possible because every individual’s earnings or savings w ill be in mat erialised form in his/ her M SA or SSAs.
4.There w ill be no scope for exchange of huge volumes of money in physical form. All money t ransfers w ill be account ed and t his eliminat es t ax evasion. Every account w ill be an involunt ary t axpaying account . Thus t ax collect ion and t ax compliance w ill invariably become one and same. There w ill be no t ax collect ion cost for Government and t ax compliance cost for cit izens.
5. Under present t ax syst em if large number of persons w ant s t o cancel t heir deposit s and w it hdraw t heir money from banks at once for one reason or ot her, t he money available w it h t he banks w ill not be sufficient t o disburse t o all persons at once causing panic and chaos. But under TOP t ax syst em t he above scenario w ill never occur under any circumst ances because any person can be allow ed t o w it hdraw ing only a maximum of 5,000 per mont h f rom his M ain Savings Account (M SA), and w hat ever money available in all his Sub Savings Account s w ill have t o be t ransferred from t hose account s t hrough cheque, debit cards or net banking t o ot her person’s account w hile buying shares, lands, flat s, plot s, any commodit y, goods, service or anyt hing else or in case if he w ant s t o lend money t o ot her persons. He/ she can t ransfer all his/ her money from his/ her part icular M SA or SSA t o anot her SSAs of his/ her ow n account by losing 4% Top t ax in t his process
Under proposed TOP Tax syst em each person w ill be allow ed t o w it hdraw a maximum of Rs. 5000 per mont h from savings or earnings in his/ her M ain Savings Account only.
The mont hly cash w it hdraw al limit for each cit izen can be calculat ed as follow s; - The value of t he [GDP value of t hat count ry – (export s – import s)] divided t ot al number of M SA’s divided by 12 (mont hs). Please not t hat each cit izen above age of 12 years w ill have only one M ain Savings Account (M SA). The mont hly w it hdraw al limit (cash in physical form) w ill vary from count ry t o count ry.
This t able show s t he suggest ed mont hly w it hdraw al limit s for India.
Not e – This document w as prepared in 2009. The follow ing budget figures given below w ere t aken from t hat year. Since t hen t hese figures are not updat ed. Now t he mont hly w it hdraw al limit can be increased t o 10000 per mont h per person.
GDP 2009-10 BE in crores Tot al populat ion of count ry Approximat e. No of M SA’s over15years). In crores
Per capit a income/ M SA/ annum In Rs. Per capit a income in Rs. / M SA/ mont h 58,56,569 116 crores 100 58,565 4880
The monthly w ithdraw al limit of Rs. 5000 can be increased at budget time depending upon the GDP value. Under proposed TOP Tax system currency in 20, 10, 5 and 2 rupee notes needed to be put in circulation w ill be approximately valued at Rs. 20,000crores. Besides these currency notes 1, 2, 5 rupee coins w ill also be in circulation as in present system.
The limit ed paper currency t hat needs t o be put in circulat ion may vary from count ry t o count ry depending upon GDP value of t hat count ry.
The value of t he limit ed paper currency should be equal t o t he value of t he [GDP of t hat count ry – (export s – import s)]divided by 365. (If GDP = private consumption + gross investment +government spending + Exports – imports)
In crores GDP 2009-10 BE in crores agricult ure sect or 17% Service sect or 55.3%
indust rial sect or 27.7% GDP per day
58,56,569 9,95,616 32,38,682 16,22,269 16,405
Source: finmin.nic.in
Out of t ot al GDP value of Rs.16045crores per day an average 30% value of GDP (5000crores) per day w ill be bought by cash at first st age. M ost probably t he remaining second and t hird st ages and most probably 70% of GDP (average t hree st ages) w ill be t ransact ed t hrough cheque, debit card or online cash t ransfers. Under proposed TOP Tax syst em holding and carrying of cash of more t han Rs. 30,000 over long dist ances need t o be banned. Ret ailers, pet t y shop ow ners and ot her businessmen should deposit t heir sale proceeds received in cash in t he nearest banks every day. Therefore most of t he currency shall be circulat ed locally.
2007-08 figures Source: rbi.org.in rupees crores
Rs.20 Rs.10 Rs.5 Rs.2 coins Tot al value
Rs.5 Rs.2 Rs.1
The above valued currency (coins and not es) present ly in circulat ion w ill most probably be sufficient for t he proposed TOP Tax syst em in t he case of India.
The paper money needed t o be put in circulat ion= t he value of GDP X 10% of slab rat e (4%) divided by 100= value of GDP X 0.4 / 100. Paper money w ill be circulat ed in low volumes only at primary level in t he manufact urer, dealer, and ret ailer and consumer chain.