Black money does not change its colour merely because it is deposited in bank: Arun Jaitley

NEW DELHI: Finance minister Arun Jaitley said demonetisation is intended to create a new “normal” and change the expenditure pattern of India and Indians, highlighting the low level of tax compliance in the country.

He pointed to the costs of a cash economy in a Facebook blog in which he took stock of demonetisation two months after it was announced on November 8.

Jaitley said queues outside the banks had disappeared and remonetisation was surging ahead. The impact of demonetisation on the economy would be transient, he said. Just because a large quantum of high denominational currency has been deposited with the banks does not make this cash legitimate, Jaitley added. The revenue department would look into these deposits, he said.






Low tax base
He pointed out that in FY16, 3.7 crore assessees out of a total 125 crore people filed income tax returns. Out of these, 99 lakh declared income below Rs 2.5 lakh and paid no taxes; 1.95 crore declared income less than Rs 5 lakh; 52 lakh declared income between Rs 5 and Rs 10 lakh, and only 24 lakh 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 wrote.


“For seven decades, the Indian ‘normal’ has been to undertake transactions partly in cash and partly in cheque. ‘Pucca’ and ‘kachha’ accounts are a part of the business language.

Tax evasion has been considered as neither unethical nor immoral. It was just a way of life,” he said, pulling up governments that turned a blind eye to it. He said demonetisaion will disrupt this. “Demonetisation puts a premium on honesty and penalises dishonest conduct.”






Perils of Cash
He said cash facilitates tax evasion, encourages the underground economy, bribery, corruption, fake currency and terrorism, while making a case for an ethical digital payments economy.

“Ethical and developed societies aided by technology have consistently moved towards banking and digital transactions as against the excessive use of cash,” he said, while pointing out how it will help lower taxes for everyone.

“When governments are able to collect more tax from tax evaders, they are in a better position to collect less tax from everyone else,” he said. “States have shown that the stores of cash do not disappear on their own till governments take active steps to reduce the quantum of paper currency.”


Short-term pain
Jaitley said the decision required both courage and stamina, though implementation carried pain and can lead to short-term criticism and inconveniences.

“The decision involves high level of secrecy and printing substantial amounts of paper currency, distribution through banks, post offices, banking mitras and ATMs,” he said.


He said any drop in economic activity on account of the cash crunch during the remonetisation period would have a transient impact on the economy.

The statistics office has said that the Indian economy will grow 7.1% in FY17, down from 7.6% in the year before, but this didn’t include the impact of demonetisation.

Most experts expect growth to be even lower. “The period of pain and inconveniences is getting over,” Jaitley said, claiming public support for the scheme.






He said all opinion polls by independent media organisations have shown that an overwhelmingly large percentage of people have supported the government’s decision. “There was no social unrest while implementing such a major decision,” he pointed out.


Currency deposits
He also rejected the criticism over large amounts of old notes being deposited with banks.

Various estimates suggest around Rs 15 lakh out of nearly Rs 15.44 lakh crore in demonetised notes has been deposited with banks. The Reserve Bank of India has said it is still in the process of double checking the numbers.

“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,” Jaitley said.

“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,” Jaitley said.






Opposition to demonetisation
He said the opposition’s exaggerated claims on economic disruption have proven wrong, attacking the Congress party for adopting a political position. “It sided with black money friendly status quo.”

Jaitley said there was a marked difference in the approach of Prime Minister Narendra Modi and his opponents. “The Prime Minister was being futuristic, and thinking of a more modern, technology driven, cleaner economy. He is now speaking of cleaning the political funding systems,” the finance minister blogged. “His opponents want a cash dominated, cash generating and cash exchange system to continue.”








-Economic Times