FAQ’s on Non-Cascading Transaction Tax

Any Taxation System will gain strength, with active participation of it’s Subjects and when Tax is collected at transaction level, at predictably minimal tax rates, all basing upon a simple and a clearly defined rule set for Individuals and Organizations (belonging to different industries) both, then the possibilities of accountability to prevail is higher, naturally curbing corruption to minimal levels, if not eliminated from the system and minds of people too.

The idea of Transaction Tax, is decades older, and while other Transaction Tax Proposals such as Automated Payment Transaction Tax (APT) by Mr.Edgar L. Feige, Banking Transaction Tax (BTT) by Arthakranthi etc…, focuses on increasing the digital transaction footprint (with / without tangible currency notes) and to apply a minimal tax rate at transaction level, NCT Tax, on other hand, primarily considers the non-cascading taxation phenomenon as an important criteria, when applying tax on Transactions w.r.t. several industries.

While most of the transaction tax proposals focus on eliminating tax return submission and Input Tax Credit / Refund scenarios, NCT Tax clearly mandates Tax Return Submission for Organizations (to allow them Claim applicable Input tax Credit / Refunds on Industry specific business expenditure), while Individuals are totally exempted from Tax Return Submission in the process.

When compared to existing taxation system, implementation of Transaction Tax surely do not contribute to price rise, and coming to NCT Tax, since it is focused on preventing cascading effort, the prices are sure to become more affordable to Consumers, while profit margins remain reasonably same, if not higher to Businesses.

When compared to Current Taxation System, Tax Rates are proposed to be very minimal in Transaction Tax approach, that naturally creates an encouraging mood, for businesses to thrive, and when compared to other options, NCT Tax has better possibilities of acceptance, with it offering the possibility of Claiming Input Tax Credit / Refunds (for Industry specific Business Expenditure), to Organizations, while ensuring increasing accountability, at all levels.

With increased deposits in Bank Accounts and it’s regular usage, w.r.t. any transaction, rate of funds availability will be higher for Financial Institutions, that makes Loans available at Low Interest Rates to Citizens / Residents, irrespective of whether they choose to,

1. Build a House
2. Start a Business etc…

On the other hand, Financial Institutions provide much lesser interest on collected deposits, while this is a natural phenomenon, specific exemptions can be made, so Deposits of Senior Citizens receive higher interest rates, while Tax will not be collected on Earned Interest w.r.t. Deposits of Senior Citizens (with registered Financial Institutions only), in the NCT Tax Regime.

With Authentic Credit Score, that being made available to every Citizen / Resident, in the Country, Financial Institutions will be ready to give reasonable amount of loans (with specific Loan Deposit Transactions being exempted from tax collection in NCT Tax Regime, when issued by a registered Financial Institution), and Hand loans between Individuals, may not be encouraged, as these may not be distinguished effectively from other P2P transactions, thus Tax collection happens as a natural consequence in this scenario.

Any Unique Identification Card, w.r.t. Tax Department, that is currently in use, can be chosen as Tax Identification Card, in the NCT Tax Regime. In Indian Context, options like PAN Card / GST Identification Number etc…, that is available with masses, can be used as Tax Identification Card, in the NCT TAX Regime.

Similar to existing norms with Goods & Services Tax, the same HSN Code for Goods and SAC Code for Services, can be used in the NCT Tax Regime as well.

Similar to Goods & Services Tax Regime, Input Tax Credit / Refunds can be Claimed by Organizations, for their Industry Specific Business Expenditure Only.

While Data may be shared between Government Departments and / or Data be shared with General Public (as per Right to Information Act, in Indian Context), most of the time, it is the anonymous summary that potentially may be shared, rather than in the form of Transaction History of each Citizen / Resident, all in the scope of fulfilling the obligations w.r.t. relevant use cases, as allowed by the law of the Country. The measures those that are expected to be taken by respective departments, in the direction of ensuring Data Privacy of Individual / Organization and Security of corresponding Data, can be vetted and verified, by the Data Protection Authority of respective Country. In this context, neither Government nor some private sector company can abuse, as long as the Data Protection Authority prevails as an independent organization, like every other independent agencies in respective country.

Unlike in the Current scenario, where Chartered Accounts deal Tax Returns of Individuals & Organizations (of different types), from Income Tax to GST etc…, NCT Tax Regime enables Chartered Accountants, with an opportunity to fully focus on,

1. Tax Return Submissions w.r.t. Organizations (For Profit Businesses / Non-Profit Organizations / Spiritual Organizations / Political Organizations etc…).
   
2. Financial Audits w.r.t. happening transactions (of Individuals / Organizations), those that are facilitated by Financial Institutions / Non-Banking Financial Institutions (NBFCs) etc… in terms of transaction purpose and also in KYC / AML / CTF perspectives.
   
3. Verify, if Financial Institutions / Non-Banking Financial Institutions / Fintech Companies (irrespective of Sponsor Bank context) are regularly notifying Suspicious Transactions to Financial Regulator of respective Country. The recipient of Suspicious Transactions info is Financial Intelligence Unit of Reserve Bank of India, in Indian Context.
   
4. Company Secretary Services
   
5. Representing their Customers before Tax Commissioner (Appeals) and / or Appellate Tribunal etc…,

Note: With lesser focus on unnecessary tax litigation, there will be a better chance for Chartered Accountants, to focus more on core productive issues of their clients and that will naturally serve as a contribution towards a better & more inclusive economy.

With total focus on vetting Tax Returns from Organizations (For Profit Businesses / Non-Profit Organizations / Spiritual Organizations / Political Organizations etc…), professionals from all Tax Departments can be brought into NCT Tax Department, trained to use relevant software, and deployed to handle,

1. Specific Tax Evasion scenarios,
2. Bulk Approvals, w.r.t. Tax Notice Creation in the Central Tax Notice / Dispute Handling System, all as per specific Software based Recommendations, and for subsequently sending notifications through Email / SMS / Whatsapp etc…, as options are configured w.r.t. specific Individual / Organization in the system.
3. Manual Overrides w.r.t. Software based Recommendations, to prevent collateral damage due to Software Bugs / non-comprehensive tax enumeration scopes etc…, while maintaining a clear log of all Manual Overrides, in accountability perspective.
4. Handle all / any other activities of the NCT Tax Department.

Note: All the above to inclusively handle multi-fold growth in tax payer base, while utilizing the best technologies and solutions in Software, to vet submitted tax returns, and to continuously monitor the increased volume of tax collection.

The primary focus of NCT tax is take the Nation as a 80% to 90% Digital Majority Economy and while Cash Transactions are primarily allowed in P2M Transactions (upto pre-defined transaction specific upper limits).

When considered in the Indian context, NCT Tax proposes to define Rs.50000 as “per Transaction” Upper Limit, while gradually reducing it to less than Rs.5000, over a span of 1 to 2 Years, thus Cash Transactions prevail through time, but will be in use specific to minimal value transaction scenarios only.

Irrespective of whether it is a Stock Brokerage (that deal Mutual Funds etc…) or an Asset Management Firm (that deals with PMS & AIF Funds etc…) or a Financial Institution (that deal Forex Transactions / Forex Traders etc…), these Organizations will pay Tax on the Earned Income w.r.t. Stock Trading Transaction / Investment Advice / Portfolio Management Services / Forex Trading Transaction etc…, while being allowed to Claim Input Tax Credit / Refunds w.r.t. corresponding Industry specific Business Expenditure Only.

Since Capital is treated as a Good, Tax will be collected on Earned Revenue, in the scope of Loan Processing Charges, Pre-Closure Charges and any Earned Interest on issued Loans etc…, and in this process, the Loan Applicant (in Individual / Organization scope) is never charged a Transaction Tax, specific to Loan Amount Deposit Transactions, those that are received in to their Bank Accounts, and from Registered Financial Institutions (Banks) / Non-Banking Financial Institutions Only.

NCT Tax will be levied as Direct Tax upon Individuals and Indirect Tax upon Organizations.

The Organizations that does P2M Transactions, are eligible to handle Cash Transactions, and to Collect Reverse Charge from Customers. Cash Transactions as an option, will not be allowed to Organizations in all other transaction scenarios (B2B Transactions, Non-Profit / Spiritual / Political Organizations received donations, Relief Fund Collection Scenarios etc…).

With simple and seamless Tax Policy in the Country, the Founders of Startups will have more time, to focus on their Passion and in achieving it. For those Founders, who think of getting external funding support (Domestic / International) to their Company, irrespective of whether it is Angel funding / Seed funding or next levels, the Investment Deposit Transactions will be exempted from Tax Collection in the NCT Tax Regime, as long as, the Startup receives it from authorized parties, while it fulfills all other guidelines and mandates w.r.t. Registrar of Companies, of respective country.

Note: There will not be anything that discourages Receiving Investments (like it happens in the scope of Angel Tax, with Tax Estimates being done, all based upon Tax Officer Interventions in the scope of Fair Value Valuation Calculations, in Indian Context), while still ensuring the legitimacy of the Received Funds.

In Current scenario, most of the Payment Service Providers charge approximately 2% for Domestic and 3% for International Transactions, and with NCT Tax Regime, the payment gateway charges will be normalized and paid by the Government, to respective Financial Institutions / Payment Networks. These Payment Gateways, Payment Networks and Financial Institutions, those who are involved in the process, are allowed to Claim Input Tax Credit / Refunds, on Earned Income, for facilitating payment Services. The Demand for Mission Critical Payments Infrastructure increases day by day, with increasing number of transactions, and these Organizations stay relevant and potentially profitable (earning minimal fee, but on higher transaction volumes) through out, in the NCT Tax Regime.

For Tax Collection during Transaction time, Citizens / Residents are to be encouraged to do transact digitally. This in turn requires better Internet connectivity, easy form factor and increased Financial Awareness in Citizens / Residents of the Country, to encourage digital transactions. Since Cash prevails for specific use cases and with transaction specific upper limits, there would not be a panic situation, and tax collection on Cash Transactions, can be done through Organizations in the name of Reverse Charge, and w.r.t. P2M transactions. With continuous financial awareness campaigns and corresponding policy specific encouragements, more and more Citizens / residents can be driven to transact digitally and that subsequently makes inroads for increased tax collection (in the scope of P2P, B2B, Organization 2 Organization Transactions).

Last but not least, when Organizations start paying Salary / Service Fee of their Employees / Service Providers digitally, and till the last mile, without fail, that itself paves way for increased tax collection, in the process.

Some of the popular scenarios include:

a) Payment Gateway Charges will not be collected anymore from Individuals / Organizations, as Government facilitates digital transactions, while absorbing applicable transaction charges, in the process. When delved upon reasons, one can understand the importance of tax collection (it being one of the very important income sources, if not the Primary Income Source, for the country), and the Finance Ministry will potentially work in coordination with the Banking Regulator and Tax Authorities, while involving all Payment Service Providers in the process, for enabling mission critical infrastructure / service paths, to seamlessly facilitate increased number of digital transactions and corresponding tax collection as well, all at transaction time (and well before Settlement to the Beneficiary), in the process.

b) Maintain an up to date, Credit Score / Credit Report, for Individuals / Organizations. This helps Citizens / Residents, to get loans in a quicker, easier and in an accountable way.

c) Continuous KYC of Citizens / Residents, to stay in sync with the guidelines of the Financial Regulator, Tax Authorities and the Government.