oppn parties Cash: Flushing Out Necessary to Stop Corruption and Tax Evasion

News Snippets

  • Delhi Additional district judge Nikhil Chopra says there is no legal right for people seeking to worship deity inside Qutab Minar, says it survived 800 years without worship so "let it survive like that"
  • Punjab chief minister Bhagwant Mann sacks state health minister Vijay Singla over corruption charges. Singla was later arrested by the ACB
  • Protestors burn the house of Andhra minister P Viswaroop and MLA Satish Kumar over renaming of Konaseema district as B R Amberdkar Konaseema
  • Gyanvapi: Varanasi district judge decides to first hear the 'maintainability' plea filed by mosque management
  • Delhivery and Venus Pipes shares list at premium of 10% and 8.7% respectively even when market sentiment was down
  • In a bid to cool edible oil prices, Centre allows duty-free imports of 20 lakh tonnes each of crude sunflower oil and crude palm oil per annum this year and next
  • Centre caps sugar exports to ensure availability of stocks in the domestic markets to cool prices
  • Stock markets get the jitters as RBI signals rate hike and government moves in to control inflation: Sensex tumbles by 236 points to 54052 and Nifty goes down by 89 points to 16125
  • IPL: Lucknow Super Giants to meet Royal Challengers Bangalore in the first Eliminator today. Winners to take on Rajasthan Royals for a place in the finals
  • IPL: Sensational David Miller blasts three sixes off the first three deliveries of the last over to help Gujarat Titans beat Rajasthan Royals by 7 wickets and enter their maiden IPL final in their debut year
  • While joining US-led IPEF, PM Modi says it will bring "peace and prosperity in the Indo-Pacific region"
  • Mamata Banerjee says Bengal government will not lower VAT as the excise cut by the Centre will already reduce state's revenue by Rs 641 cr
  • Mamata Banerjee says Central agencies must be made autonomous to save democracy
  • While commuting the death sentence of 2 men and 1 woman, the Supreme Court says convict's conduct before and after crime is vital for death penalty
  • Health minister Mansukh Mandaviya slams the Covid death report of WHO at the 75th session of World Health Assembly in Geneva
US President Joe Biden says India-US ties to be among "closest on earth" //////// China and Russia send bombers near Japan even as Quad leaders were holding meetings there /////// Gujarat Titans enter IPL finals in style, beat Rajasthan Royals by 7 wickets
oppn parties
Cash: Flushing Out Necessary to Stop Corruption and Tax Evasion

By Sunil Garodia
First publised on 2016-12-03 12:02:17

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
Is the government acting in haste to choke the economy of funds? Is it in the process making banks to suffer loss of income? These questions arise as post demonetization, the RBI has increased the CRR to 100 percent of the funds received after September 16 and has now increased the Market Mechanism Scheme (MMS) from Rs 30000 crore to Rs 6 lakh crore.

Imagine the plight of the banks. They have seen a huge increase in deposits as a result of demonetization. As most of these deposits have been in savings bank accounts of customers, banks have to pay anywhere between 4% to 7% interest on such deposits as per their policy. If the whole of these funds are parked in non-interest paying CRR with RBI, the balance sheets of the banks will be further strained. If even 40% of these deposits were allowed to be retained by the banks, they could have lent a substantial sum of money at over 11%, giving them a cushion of 7 to 4%. That would have more than offset the loss on paying interest on deposits.

But the government is perhaps acting with a bigger picture in mind. Apart from the inflationary pressures likely to be unleashed if such huge sums remain in the market, the flushing out of the cash is in line with the avowed aim of the prime minister to move towards a less-cash economy. With cabs, grocers, pharmacies, small eateries and even roadside vendors in cities adopting e-wallets and maids, drivers and milkmen accepting cheques, it makes sense to drive the economy towards digital payments. The common refrain to hold cash is that one needs it to make small payments. But with those accepting small payments willing to change and adopt technology (although out of necessity due to scarcity of cash post demonetization) that excuse will now become redundant. Cities and towns across India should be the drivers of the move towards a less-cash society. Buyers and sellers both should now increasingly use e-wallets. Rural India will need more time for the transition and cash should be made available to them.

Prime Minister Modi is right in saying that too much cash gives rise to corruption. It also helps in evading taxes. Cash leaves no trail and is the preferred mode of payment for bribes and unaccounted transactions. Most often, it is seen that people report just Rs 3 to 4 lakh as their annual taxable income and show a drawings of just Rs 2 to 2.5 lakh for personal expenses. But the way they live, their annual expenses are more than their stated income. People think nothing of buying a pair of Jimmy Choo shoes for Rs 2 lakhs (in cash, of course) but will fight furiously with their chartered accountant if they have to pay just Rs 10000 more as tax than what they paid last year. These are the same people who will curse the government if their BMW’s fall in a pothole. Earn cash in unreported transactions, evade taxes and spend gloriously in cash while living life in the fast lane and blame the government for all ills is the motto of this class. This class includes everyone from politicians to professionals, bureaucrats to policemen and businessmen to smugglers. Squeezing of cash from the economy is absolutely necessary to end their free play.

In any case, India had been sitting on a huge pile of high denomination currency notes before demonetization. A total of Rs 15.5 lakh crore, representing about 86% of the total currency in circulation, was held in these notes. For a poor country like India, it was an absurdly high percentage. The government should now ensure that high denomination notes are not in excess of 50% of the total currency. Simultaneously, it should bring in some sort of tax on deposit and withdrawals of cash in bank accounts above a certain limit. In addition to recently introduced provisions to prevent unreported cash transactions (like quoting PAN for purchases over Rs 2 lakhs and deduction of Tax Collected at Source by the seller), these provisions will go a long way in ensuring that at least urban India moves towards digital payments and a less cash economy, where every transaction is reported and can be trailed if the need arises. With crores flowing into hitherto dormant bank accounts, now is also the opportunity for the government to spot new tax payers and suitably, and perhaps upwardly, revise the assessment of incomes of current tax payers. Efforts to deprive the country of legitimate taxes by hiding behind the cash shield should no longer be tolerated.