Every person w ill have t he follow ing opt ions t o avoid Profit Taxof 30% being deduct ed from his/ her
M ain Savings Accountand Sub Savings Accounts.
He/ she can buy lands up t o 20 acres of land, unlimit ed number of flat s, commercial est ablishment s and ot her propert ies as he/ she w ishes. This enables real est at e sect or grow s at f ast er rat e and house rent s w ill come dow n subst ant ially benefit t ing families w ho have no ow n houses.
He/ she can buy unlimit ed number of shares as he/ she w ishes .Even t hough he/ she looses a 4% of share value as TOP Tax w hile t ransferring cash from his/ her account st ill he/ she get s benefit ed from 30% Profit Tax being deduct ed. So people w ill look out for t he companies w hich declare dividends every year. They also st udy carefully t he fundament als of t he company like t he book value, EPS, P/ E rat io, profit s, dividends, reserves, liabilit ies et c. before buying shares. In t his scenario t he st ock market s w ill grow at st eady rat e and t here w ill be no market crashes now and t hen as w e are experiencing under present syst em.
He/ she can lend money t o ot hers w ho are in need. Even t hough he/ she looses 4% of money as TOP Tax w hile t ransferring cash he/ she get s benefit ed by get t ing 4% int erest on t he loan amount ever year. In t he process t he loaners (loan t akers) w ill get loans at cheaper rat e w hen compared t o present syst em.
He/ she can set up indust ries, st art businesses t o avoid Profit tax. So in t his process huge employment opport unit ies w ill be generat ed. So in t he ensuing compet it ion, commodit ies’ prices w ill become much cheaper.
He/ she can t ransfer cash from his/ her M SA/ SSAst o anot her one of his/ her Sub Savings Accounts or t o his w ife’s/ her husband’s SSAs t o avoid Profit tax. He/ she can donat e huge amount s t o organisat ions/ charit able t rust s if he/ she w ishes. In t his process he/ she w ill lose 4% of t hat t ransferred cash in t he form of Top Tax.
He/ she can invest in various Life Insurance schemes. At t he end of t he mat urit y period t hey w ill get only t he act ual t ot al premium amount paid w it hout any int erest . But in case of premat ure deat h or
hospit alisat ion due t o illness full insured amount w ill be paid as in t he present syst em. Vivid explanation: - The TOP Tax system’s tax collections (TOP Tax and Profit tax) for
Government and tax payments/ tax compliance by all citizens w ill be totally automatic and involuntary just like respiratory system in human body. Every account (M SA/ SSA/ CAN) is an involuntary taxpaying account. A person’s M ain Savings Account number w ill remain same for his/ her entire life time. He/ she can change the bank at any time but the account number w ill remain same. The M ain Savings Account number is portable. Citizens need not maintain separate account books and submit tax returns annually for paying either Direct taxes on personal incomes or Indirect taxes w hile running business or industry. The single tax net (Transfer Or Purchase tax) spreads all accounts and entire nation w ithout bothering about w ho holds that account. This w ill put the tax component of goods/ services at just one third of tax component of the existing system. Besides t hat there w ill be no tax collection expenditure for the Government and absolutely no tax compliance cost for paying either Direct taxes on personal incomes or Indirect taxes w hile running business or industry. The Transfer Or Purchase tax (4%) w ill be deducted automatically by computer systems of banks on all money transfers from one account to another account made through cheque, debit card, DD or online transfers irrespective of the fact that w ho holds that account and for w hat purpose that money transfers have been made. Thus tax collection and tax compliance w ill invariably become one and same. This automatic tax payment and tax collection system ensures that there w ill be no revenue leakages, unaccounted incomes and w ealth. There w ill be no need for Governments to run separate tax collection departments and tax enforcement agencies and departments to see and verify accounts of all taxable citizens. Similarly people need not employ accountants or tax consultants to pay either Direct taxes or Indirect taxes or to submit tax returns. The plethora of tax law s, that are enacted and being used in the present system to enforce tax payments, w ill not be necessary at all in the TOP Tax system. The millions of tax related legal cases, w hich are emanated from non compliance of taxes and unaccounted incomes, and choking the judicial systems of all nations, w ill not be seen in the TOP Tax system. This is how the TOP Tax
system w orks and helps bot h Government in Direct and Indirect tax collections w ithout tax law s and enforcement, and citizens in paying taxes involuntarily w ithout tax compliance (accounting, auditing, tax returns etc.,) costs.
The collected tax revenues of TOP Tax and Profit Tax by banks w ill go to Government accounts (SACCA). These revenues w ill be transferred to various departments/ ministries according to the percentages as allocated to these departments/ ministries at the budget presentation. This percentage of allocations to various departments/ ministries can be changed from time to time depending upon the necessity, need, urgency and emergency of the situation that arise unexpectedly. As stated earlier the revenue generation w ill be smooth, easy and continuous process at minimum burden on people making it possible for the simplified budget presentation. The collection of revenues from people to Government and transfer of these revenues from Government to people through various ministries/ departments/ agencies is smooth, hassle free and continuous process w ithout leakages, tax collection, tax enforcement and tax compliance costs.
In the present economic system Direct and Indirect taxes are being paid by citizens based on the accounts prepared by them and there is common financial year for all citizens to submit their accounts and Income tax returns. But in the TOP Tax system, TOP Tax and Profit tax w ill be on account basic. The financial year of each account SSA/ CAN begins at the date it is opened and the financial year of M SA w ill begin at the date t he Government allots M SA to each citizen at the age of 15. It doesn’t matter much w hat the financial year of each account is. The number of accounts that begin or end each day is approximately equal t o the total number of accounts operated by all banks in that country divided by 365. The common financial year for the w hole nation w ill become irrelevant, unimportant and redundant in the TOP Tax system. Each individual can have a chosen financial year for his every SSA account.
All these savings account numbers are portable. An individual can change any bank at any time but the savings account number w ill remain the same. An individual’s M ain Savings Account w ill be same during his/ her entire life albeit w hichever bank operates his/ her account.
3. TOP Tax system w ill run on limited paper currency
TOP Tax syst em, operat ed by banks, w ill run on limit ed paper currency t o eliminat e black money, fake currency, corrupt ion, ransoms and ext ort ions.
In t he present economic syst em, t here is huge money in physical form (bills/ not es). For example in India, t here is an est imat ed physical currency of 10,72,020 crores w it h t he public out of t ot al money supply of 77,25,560 crores excluding fake currency in t he economic syst em (As at 2012 - June 29 ). This physical currency is about 13.8% of t he t ot al money supply in t he economic syst em. The percent age of physical money may vary from count ry t o count ry. There are report ed t o be plent y of cases of loot ings, robberies, homicides, ext ort ions, ransoms, and bribes across t he w orld in almost all nat ions because of t his huge m oney in physical form. This physical money, in huge amount s, is being t ransferred from one hand t o ot her eluding all t ax net s in t ransact ions of commodit ies or goods. The unaccount ed GDP is said t o be t oo heavy and varies from count ry t o count ry depending upon t he corrupt ion level t hat exist s in t hat count ry. In addit ion t o t his black money t here are also huge amount s of fake currency t hat has cont aminat ed t he genuine currency. The combined effect of t he black money and fake currency is playing havoc w it h economies of many count ries. Now money is being t reat ed as an income generat ing asset and w ealt h inst ead of using it as a medium in exchange of commodit ies, goods, services, and shares, physical and int ellect ual w orks. The huge accumulat ion of money in few pocket s in t he form of black money is making t he cyclic circulat ion of money in t he economic syst em t o be errat ic (some t imes more cycles per year and some t imes less cycles per year) w it h st agnat ion/ non usage of money causing economic recession at t imes. The mult iplier effect on t he money in banking
finance syst em is decreasing t he real face value of t he physical currency. Alt hough t he individual’s earnings are increasing every year, t he purchase value of t he currency is decreasing and reached almost 1/ 10t hof it s f ace value. TOP Tax syst em t ries t o fix t his problem by qualit at ive and quant it at ive supply of money in economic syst em so t hat t he purchase value of physical currency at it s face value remains high and same for longer period of t ime. The prices of commodit ies or services w ill remain same or even decrease enhancing t he purchasing capacit y of people every year w it h increase in earnings (per capit a income) each year.
In t he suggest ed TOP Tax syst em 99.4% of t he money supply available in t he economic syst em w ill be in demat erialised form in t he account s of cit izens, Government s and companies. Only small port ion of money, equalling just 0.6% of t he t ot al money supply in t he economic syst em, w ill be in physical form i.e. currency not es Rs 30, Rs 20, and Rs 10 and coins Rs 5, Rs 2, Rs 1 coins.
Under TOP Tax syst em t he 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 = privat e consumpt ion + gross invest ment +government spending + Export s – import s). This limit ed paper currency equalling t o 0.6% of t he t ot al money supply in t he economic syst em w ould be more t han sufficient if w e assume t hat t he average each day consumpt ion of t ot al GDP can be bought by physical currency alone. (100/ 365 = 0.273). In real t erms t he low valued commodit ies or services like, veget ables, fruit s, milk, edibles, papers et c., w hich ought t o be bought by physical currency, const it ut e about 30% of t ot al value of t he GDP. In t he TOP Tax syst em all higher valued commodit ies or services w ill have t o be bought t hrough debit cards, cheques, demand draft s or online cash t ransfers because of bot h limit ed paper currency and rest rict ed mont hly cash w it hdraw als from t heir account s. That means even t his 0.6% physical currency is more t han t hrice t han act ually required. So t he ret ail sellers, st reet vendors, haw kers, salespersons, w ho rely on physical money for t heir business, w ould not be dist urbed.
Every year addit ional physical currency, equal t o 0.6% value of t he grow t h rat e of t he GDP and addit ional currency equal t o mut ilat ed and t orn not es, can be induct ed int o economic syst em t hrough government spending.
Every person w ill be allow ed only limit ed w it hdraw al of cash from his / her savings or earnings from his/ her M ain Savings Account even t hough he/ she has huge amount of earning/ savings.
Ot her t han cash w it hdraw als, he/ she has t o spend, invest or donat e his/ her earnings t hrough debit cards, cheques, demand draft s or online cash t ransfers.
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 by t ot al number of M SA’s divided by 12 (mont hs) [GDP / M SA’s / 12]. Please not t hat each cit izen above age of 15 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 depending upon it s GDP value.
For example in India, t he parallel economy being run by black money almost equalling t he account ed GDP of t he count ry and huge volumes of fake currency w ill be t ot ally eradicat ed w it h t he demonet isat ion of higher value currency not es (Rs 1000, 500, 100 and 50 not es) in t he suggest ed TOP Tax syst em paving w ay for corrupt ion free societ y.
So t here w ill be no generat ion of black moneyand fake currency, and accumulat ion and st acking of money in physical form (cash) w ill not be possible. M oney w ill be const ant ly pumped back int o t he syst em so as t o avoid Profit Tax. The circulat ion of money in t he economic syst em w ill be at const ant rat e w it h more cycles w hile checking inflation even at higher grow th rate. The more cycles or exchange of money more t imes means money is spread evenly reaching all people. TOP Tax syst em w ould also arrest illegal act ivit ies such as drug t raff icking, and arms t rafficking. Once launched int o t his TOP Tax syst em prices w ould cont inue t o decline t o reach a minimum level of ¾t h and furt her up t o
half level of t he present prices due t o t he follow ing fact ors namely, low tax component (below 11%), low interest rates (3% per annum), no tax compliance costs and fully open market w ith more players in the business. M oney w ill be purely ut ilised only for exchange of goods, commodit ies, asset s, services, shares, physical and int ellect ual w orks. W hen the TOP Tax system reaches its final destination, the prices of commodities/ goods or services include only the value/ cost of manpow er (physical/ intellectual) w here abundant raw materials are available. In t he present syst em t he prices of commodit ies/ goods or services include various component s like raw mat erials cost , t ax, profit , int erest , corrupt ion, t ax compliance cost , man pow er (physical/ int ellect ual), t ransport , pow er (fuel/ elect ricit y) and shelf life. The final result of TOP Tax syst em w ill be t he achievement of perfect equilibrium bet w een demand and supply; development and equalit y; grow t h and inflat ion; real money and credit money (loaned money); revenues and expendit ure. The lopsided development among people and regions t hat is being w it nessed in t he present economic syst em w ill cease t o exist . The nat ural resource and w ealt h of a count ry can be equally dist ribut ed among t he people.
Under present economic syst em t here are only a few players, more referees (license, permit , check post s, w ay bills, audit ing, assessment and inspect ion) and more spect at ors. The proposed Top t ax syst em w ill leave space for more players, a few referees (pollut ion cont rol board only) and a few spect at ors. The market s w ill become so w ide open w it h no permit s or licences required (except pollut ion cont rol board’s permission) t o run any business or indust ry except t hose w here absolut e necessit y is required for permissions from Governments for mining ores, minerals, seeds, pest icides, explosives et c,. Thus everyone can ent er int o t he market and st art his/ her ow n business or indust ry w it hout any shackles t hereby reducing unemployment subst ant ially. At t he same t ime, w it h so many players in t he market and high compet it ion, t he prices of goods/ services w ill become cheaper,