‘Pain, inconveniences’ getting over, black money losing anonymity: FM

On Facebook, Jaitley says that demonetisation intended to create new ‘normal’

REMONETISATION

MARKING THE completion of two months since the government announced its decision to withdraw high-value currency notes, finance minister Arun jaitley noted in a Facebook post that the “pain and inconveniences” is now getting over.

In his post on Sunday, Jaitley wrote that the queues outside the banks have disappeared as the remonetisation process has moved ahead and that the government’s move will lead to a “bigger and cleaner” gross domestic product in the medium to long run.

“The banks today admittedly have a lot more money available in order to lend for growth. Since this money constitutes low cost deposits with the banks, it is bound to bring down the rate of interest…lakhs of crores, which were floating in the market as lose currency, have now entered the banking system,” he wrote, adding, “in the medium and long run, the GDP would be bigger and cleaner. Money entering into the banking system and officially transacted would give an ample scope for higher taxation – both direct and indirect.”

He stated that demonetisation was intended to create a new ‘normal’ and change expenditure the pattern of India and its citizens.

“Expenditure required for poverty eradication, national security and economic development have to be compromised with on account of tax non-compliances….tax evasion has been considered as neither unethical nor immoral. It was just a way of life. Several governments have allowed this “normal” to continue even though this compromised with larger public interest,” Jaitley added.

“It is obviously disruptive. All reforms are disruptive. They change the retrograde status quo. The demonetisation puts a premium on honesty and penalises dishonest conduct,” he added.

On November 8, Prime Minister Narendra Modi had declared that all the Rs 500 and Rs 1,000 notes will be invalid with effect from November 9 and the public was given time up to 30 December to deposit this money into the accounts.

Jaitley stressed that the deposit of a large quantum of high denominational currency in banks does not render this money to be legitimate cash. “Black money does not change its colour merely because it is deposited in bank. On the contrary, it loses its anonymity and can now be identified with its owner. The revenue department would thus be entitled to tax this money. In any case, the amendment to the Income Tax Act itself provides that the said money, if voluntarily declared or if involuntarily detected, would be liable for differential and high rates of taxation and penalty,” he said.

The finance minister was referring to the recent amendments to the income tax act that seek to levy higher taxes and penalties on tax evaders while giving them a window to voluntarily come forward and declare their illegal income.

Jaitley said India continues to be a hugely tax non-compliant society. In the financial year 2015-16, 37 million assesses from a total population of 1.25 billion filed tax returns, he said, of which, 9.9 million assessees declared income below Rs 2.5 lakh and paid no taxes; 19.5 million declared income less than Rs 5 lakh; 5.2 million declared income between Rs 5 -10 lakh, and only 2.4 million declared income above Rs 10 lakh. “No better evidence is required to substantiate that both in the matter of direct and indirect taxes India continues to suffer being a hugely tax non-compliant society,” he said. THE UNION Budget for the next financial year would be radically different from the previous years, not so much in terms of the proposals it will unveil but more due to the new structure and substance it will present. The Budget 2017-18 will do away with the Plan and non-plan heads of expenditure, merge the railway budget with itself and have to be prepared in the backdrop of two major events — demonetisation and the Goods and Services Tax (GST) that will be implemented during the course of the year.

It will also come 1 month early this year on February 1, as the Budget date has been advanced to ensure ministries and departments get funds on time to start spending from April 1. While the expected reduction of personal and corporate income taxes will be in focus, it is these structural changes that will define the Budget.

Last September, the government announced plans to do away with the 92-yearold practice of having a different budget for the railways, whose size was less than the defence budget but it was still being presented separately. Even as the railways budget is being merged with the Union Budget, the functional autonomy of the former to raise extra budgetary resources has not been done away with.

Secondly, along with the abolition of the Planning Commission has gone the distinction between Plan and non-plan expenditure. Plan expenditure were in the nature of asset creating productive expenditure, while non-plan spend was more on salaries, payments of subsidies and interest. This is now being replaced with an expected better indicator of productive and general expenditure via distinction under the heads of capital and revenue expenditure.

The government has also advanced the presentation of Budget date to February 1, to ensure that the Finance Bill is passed by the Parliament before March 31. This is to ensure that spending kicks in immediately from starts of the fiscal year. Opposition parties have contested this Budget date, arguing that it will provide undue edge to the BJP ahead of elections in five state assemblies beginning just three days after the Budget.

While the government is confident to generate estimates-beating tax revenues in the year ending March 2017; two key factors, demonetisation and the GST, will shape the substance of the next year’s Budget.

The government decided to withdraw old notes of Rs 500 and Rs 1,000, amounting to 86 per cent of the currency in circulation. Apart from adding to the Centre’s tax kitty, this move tilted the budget discourse towards tax rebates and incentives for digital transactions. Sops for enterprises conducting business digitally and consumers purchasing electronically are likely to dominate the budget.

But the economic slowdown that this sudden cash squeeze resulted in would mean the government announcing income tax cuts and spending increases to push economic growth. Another unintended outcome of demonetisation has been a likely delay in implementation of the GST — the indirect tax reform which was to kick in from April 1, now seems tough. A delay would mean the Centre may have to revise estimates of indirect tax receipts during the course of the year.