The flaw that I see with this system is particular to your method of taxing cash transactions. For as long as the cash is kept cash - paper and coins - it is not taxed. Therefore, I would foresee a future of matress-stuffing, personal safes and treasure chests as those with the cash do all they can to keep the money, while still circulating, out of the hands of the tax-collectors attached to the financial institutions.

My solution, of course, would be to abolish cash. An all-electronic money system, through the IRD Central Financial Network or something with a cooler acronym, where the tax is collected by ticket-clipping, all but invisible the user.