Introduction:

The people pay tax to buy civilization. But the real scenario is the condition of public service
like, public hospital, road construction, police service is absolutely low. There is corruption
in every public sector. If the people see that their money is in vain or the government is
corrupted then they will be de-motivated to pay taxes. When the policymaker makes the
policy they should also be careful about the social cost that what will be the impact of it. The
tax collectors are unable to collect tax from shadow economy. They are losing huge revenue
from it. For that they can come up with certain policy that will help them to generate more
revenue. There are also insufficiencies in tax collection. There is a law is that one have to
give tax to run a business at the very beginning. Now the issue is the business is uncertain
whether he will gain profit or not? So why should the person have to give taxes. Government
is taking tax on the interest of the bank and the bank charges it to the people or their client. If
the person have TIN number he have to pay 10% tax and the people who have no TIN he
have to pay 15% of tax.

The fundamentals of taxation in our country are two types.

 Low wiliness of tax payers

 Tax law is weak

Findings of the case:

This article argues that such a cash tax would make tax collection both easier and more
accurate. If a cash tax were imposed, most of the legitimate economy would shift to non-cash
exchange methods. In such a setting, cash transactions would be effectively limited to two
categories: low-value transactions and transactions that benefit from the anonymity
associated with cash. Transactions associated with tax evasion and other types of criminal
activities likely comprise most of the latter category. Hence, because cash would comprise a
relatively small portion of the formal economy’s turnover, there are good reasons to believe
that cash owners operating in the underground economy would be unable to roll over most of
the cash-tax burden. This means that most of the cash-tax incidence would fall on those who
use cash to engage in tax evasion or other forms of unreported behaviors. Such a cash tax
would therefore reduce the lack-of-tax benefit associated with cash-based tax evasion along
with the inequities and inefficiencies associated with it. Furthermore, it would allow
policymakers to comprehensively address the externalities associated with unreported
transactions in the cash economy.

Cash is a crucial part of modern economies and is part of a complex monetary regime. Even
though we take it for granted that the pieces of paper offer a reliable representation of our
consumption power. Much of the cash in the economy is used for unlawful purposes but in
developed economies where credit and debit cards are widely available. Cash allows income
underreporting, which is the most significant source of tax evasion, and it is also used for
criminal activities. But the policy maker doesn’t take any action. Cash was a public good
that, despite its imperfections, provided many benefits that allowed the modern industrialized
economy to develop, because cash had no real substitutes. Cash allows people to make
anonymous, unrecorded transactions and thus to evade tax and avoid regulatory burdens
associated with individuals' economic activities. The ability to underreport tax on cash-mediated
transactions imposes costs on society and therefore operates as a negative externality.

Money is essential in a modern economy because it functions as an accounting unit and cash
is just one form of money, Cash is a set of physical objects that represent money, but most
monetary assets are now disembodied and virtual, consisting of electronic accounting entries
maintained in banks computers. This modem system has led to many alternative methods of
exchanging money, including electronic transfers, debit cards, checks, and credit card
transactions. In recent years, the use of cash as a medium of exchange has been decreasing in
developing countries—debit and credit cards have gradually replaced even small, everyday
purchases traditionally paid for in cash. The introduction of mobile phone based e-purses in
developing countries suggests that this less-cash trend may even accelerate in the near future.

In addition to the misallocation of resources between the cash and non- cash sectors, the use of
cash for tax- evasion purposes imposes operational inefficiencies that reduce the productivity
within the cash sector. Finally, and perhaps surprisingly, the impact of cash-sector tax-
evasion activities on issues of distributional equity is ambiguous. Overall tax evasion is most
clearly inequitable for honest and risk-averse sellers and service providers in the cash
economy who report their incomes.

The definition of the shadow economy varies and can, under different accounts, include three
types of activities: unreported income from legal transactions, which are unreported (mostly)
for tax-evasion purposes; unreported income from regulation- avoiding transactions, that aim
to evade both taxes and regulation; and unreported income from criminal transactions.

As with tax evasion, in unreported cash transactions, cash is an important component of the
shadow economies attempt to hide from government regulatory scrutiny. Cash as a supplier
of secrecy is an important component of shadow and criminal activities. Cash as an
institution also provides those operating in these illegal markets with a link to the formal
economy in the form of an anonymous and general consumption power.

When detection probabilities are low, high penalties rare, and government services universal (or
at least not conditioned upon tax payment), evading taxes is rational free-riding behaviour. The
key to effective tax enforcement thus requires reliable as well as readily observable and easily
analyzable information, however, this type of third-party information reporting is very difficult
to enforce. The main enforcement tools that tax authorities use to deter the tax evasion of
cash based business are audits and the threat of criminal penalties. The difficulty of
confronting income underreporting in the cash economy has long-lasting effects on governments'
abilities to raise revenues in the future because the widespread nature of cash-based evasion
practices entrenches non-compliance norms.

The use of cash for unreported (tax evading) transactions is not incidental one could expect
that many cash transactions within the legal economy are deliberately designed to
attain tax-evasion benefits. Cash is a legitimate method of exchange, a Pigovian tax on cash
would optimize its usage. This tax would not be as precise as income, employment, or
consumption taxes in assessing taxpayers' economic well-being, but, it would use an indirect
means to ascertain tax liability by cash usage which would roughly aim to capture the taxes
lost due to cash-based tax evasion.

As mentioned, allowing cash-based income underreporting is a very inaccurate and

inefficient method of redistribution. Overall, there are reasons to believe that the costs of
these public option financial services and transfers would be relatively small as compared to
the direct and indirect cash-tax revenue gains. The other concern that should be addressed is
how to curtail the attempts of taxpayers to avoid the cash tax either by using cash substitutes
or by substituting domestic financial services with other forms of financial services. There are
many substitutes to cash as a method of payment (e.g., barter, foreign currencies, and
transferable checks. To further prevent a situation of never-deposited cash proceeds, a
government can impose a requirement that a certain amount of cash business receipts be
deposited. The ability of taxpayers to substitute foreign financial institutions, which
presumably do not impose a cash tax, for domestic ones, creates a serious concern for
policymakers.

Demonetizing, requires replacing all cash assets with new ones during a given time period
after which the old notes and coins would not be valid anymore. Because the replacement of
cash requires depositing it or exchanging it financial institutions, a withholding cash tax can
easily be imposed. However, demonetization involves significant administrative and
compliance costs. Policymakers can also choose to inflate deposited currencies to
counterbalance the windfall of cash holders.

First, income underreporting makes governments' attempts to monitor their economies much more
difficult. The economic monitoring difficulty associated with cash is how the cash economy
distorts the structure of tax collection. The difficulty in raising revenues from the cash sector
requires changing the overall tax mix so that other sources of income.

Shadow economy creates efficiency costs that are very similar to those of cash-based
regulated businesses that evade a significant amount of taxation. However, many of the
unreported and unregulated shadow economy activities are not antisocial doings but simply
by products of the temporary and informal employment realities of low-skilled individual
that are often too small to justify reporting. Cash may therefore allow governments in
developed countries to engage in price discrimination putting tax and regulatory
requirements only on productive industries without hankering the existence of the less
productive ones.

Things Need to be done to reduce excess cash are:

Very few cash transactions: Very few cash transactions in the market will cause the amount
of liquid cash in the market to get low.

Demonetizing High Value Currency Notes: Demonetizing high value currency notes will
dmake businessmen to leave bigger amounts and thus liquid cash in the market will get
reduced.
Introduction alternatives to cash transactions: If government introduces alternatives like debit
cards, atm card and credit card etc. to cash transactions then amount of liquid cash
transactions will get reduced.

Imposing tax on cash counter: Tax should be imposed on cash counters like banks because
these cash counters are one of the main source for big amounts of liquid cash. This will get
the amount of liquid reduced.

Restriction on drawings: Restriction on drawings will be helpful for reducing liquid cash.

Banks will not receive cash deposit from businessman: Businessmen contain big portions of
liquid cash. So if banks will not receive cash deposit from businessman, then it will reduce
liquid cash.

Providing incentives for saving cash in the bank: Providing incentives for saving cash in the
bank will get the liquid cash from general people thus reducing liquid cash in the market.

Stop mobile banking: Mobile banking should be stopped. By implementing controlling

processes, Mobile banking should be stopped to control liquid cash.

Disadvantages

Social Cost: No cash transactions or very few cash can create Social Cost and harm overall
society negatively.

Deflation: Lackof liquid cash can create movement towards deflation.

Conclusion:
Every tax payers is an individual but every individual is not a taxpayers. Policy maker can
create huge impact on the society. For example they can demobilize 1000 taka note. Then all
the black money of people will gone and the people who doesn’t pay tax they will be caught
and then the tax can be imposed on his/her money. The legislation must not be successful
rather than it should be logical and successful.
If the morale of the tax payers is low then the tax revenue will be less because people will
pay less. The reason could be dissatisfaction of law. Law is not appropriate for all but the
majority people should accept it. But in our country the law is like puzzle game. One group
doesn’t like it and another group is taking advantages through it and mostly they are the
lawyers and the doctors. They are taking advantages through it. Especially the lawyers of our
country are not willing to pay tax as they know the limitation of the law. The tax policy must
not follow the foster evasion. Foster evasion is high tax on income. Then all the people will
be de-motivated to pay tax. There should be some logical explanation for every rule of the
law and the law must be appropriate or accepted by all the people.

The main sources of tax evasion come from two sources. One is from paying the cash and
another is from receiving the cash. It encourages the criminal to do more illegal businesses.
Cash transaction is the father of all business. Make the plastic money popular. Tax should be
imposed on the source of cash transaction. If certain amount is imposed on cash receiver then
there will be no hide of tax. For example the tax on smoking is not working in our country.
What the policy maker does is that they can increase the tax on the source. That means more
tax on the cigarettes. Then people will be de-motivated to buy cigarettes.

The cash economy enables, or at least significantly simplifies, many tax evasion schemes.
This is not surprising; after all, cash transactions can go unreported and therefore remain
concealed from both regulators and creditors. The tax collector operates as both a creditor
and a regulator, which means that cash transactions impose negative externalities on tax
collection and administration. These externalities could be corrected through a relatively
simple Pigovian tax that would be imposed, prior to cash-mediated transactions, every time
cash was withdrawn from the financial system. Tax authorities would not collect any tax
when cash would be deposited.

If the cash in hand is higher than the degree of paying tax is low. The policy should be
appropriate means that the policy must be accepted by all the points of view. Privacy of the
individual must be established. If you buy anything that is harmful for the society, at the point
of purchasing time you should be discourage. If necessary they should impose higher tax on
it. For example, petrol tax, it is harmful for the society. The restriction should be on the
upstream or at the point of origin. If a cash tax were imposed, most of the legitimate economy
would shift to non-cash exchange methods. In such a setting, cash transactions would be
effectively limited to two categories: low-value transactions and transactions that benefit
from the anonymity associated with cash. Transactions associated with tax evasion and other
types of criminal activities likely comprise most of the latter category. This means that most
of the cash-tax incidence would fall on those who use cash to engage in tax evasion or other
forms of unreported behaviours. Such a cash tax would therefore reduce the lack-of-tax
benefit associated with cash-based tax evasion along with the inequities and inefficiencies
associated with it.

Tax policy can be used as a motivational tool. If the new policy come that the people who
pays highest tax they will be in the tax policy meeting in future and they can get different
benefit from the public sector. Then the new idea will come from them, and they will be
motivated to pay tax. The people should be motivated to use electronic cards for transaction.
Then the government can earn huge revenue from tax and that tax money should invest for
the benefit them. The policy maker can take sufficient and logical decision to collect more
tax. The can form a policy like, people who will give more tax the can be in the union
porishod team, and they will be nominated to run their area. And the other tax payer will
decide who will be in charge through voting system.

There are some serious problems in the tax policy. One of the main problems is the bank
charges tax on the bank account. Now the issue is the people who are earning less than
220,000 taka what will happen to them? The bank charges on their account also. It’s a kind of
discrimination to them. So the policy is not working in their way. The people who are paying
tax they are not getting any benefit. For example, hospital services, the condition of public
hospitals are very poor. Government is not working in that sector. The highway conditions
are also poor. So the people will be de-motivated. The petrol tax should be increased so that
people will dive less and there will be less environmental hazards. The people should be
motivated to use eco friendly products and not to harm the environment. There should be
higher tax on the cigarettes packet. The people will smoke less due the high price. Then there
will be less pressure in the environment. There must a policy that should be equivalent to all
the people.