Eight steps to prevent creation of black money in post-demonetisation era

SES says more measures needed; suggests taxing cash transaction and agricultural income among others

Demonitisation has brought a sense of justice among honest tax payers and this would be further strengthened if money recovered is used by the government in an efficient and leak-proof manner for infrastructure and social schemes, says Stakeholders’ Empowerment Services (SES). 

In a report titled Demonetisation — India’s BLEXIT, SES termed the move a ‘one-stroke’ revenge by the government on behalf of honest tax payers. “For decades, there has been a feeling among honest tax payers that they have been short-changed as while they paid taxes, those who avoided taxes were better off and did not face consequences. Additionally, the corrupt had disproportionate purchasing power. In one stroke, years of injustice has been avenged by the government.”

The proxy firm, which usually focuses on corporate governance in listed firms, however, argued that the current step alone would not end corruption and creation of new black money. “It has ended the black money held in form of cash for once but the government will have to take further steps to stop corruption in the future. The leakage of unaccounted money into the black system must end,” the report said. 
 

SES was of the view that the government was in the best position to bring in reforms to cleanse the system. 

It recommended eight key steps that may cause short-term pain, but result in long-term dividends.

1) Mandatory digitisation of all land and property records linked to PAN/ Aadhaar numbers.

2) Tax on agricultural income based on farm holding, leaving small and marginal farmer untouched and unaffected. 

3) Small and marginal farmers be provided one-time state assistance to rid their personal debts taken from local money lenders at exorbitant rates. The money so given as assistance must be recorded as interest-free loan from the government payable only in case the land is sold by these farmers. This will ensure that while the economic status of farmers will improve, the money will not be misused. The land shall not be allowed to be mortgaged to anyone except banks for crop loan only.

4) Plastic money should be encouraged. A charge may be introduced for cash withdrawal beyond a limit. For example, any cash withdrawal beyond Rs 10,000 per month for an individual or business entities according to the class of entity, a certain percentage of the turnover may be allowed to be withdrawn free of cost and thereafter rates should be increased in steps. Provision may be made for small businesses and in their case, the charge may be based on net withdrawal. 

5) Cash transaction fee must be introduced. At present, many business establishments display a sign that credit card payment will be charged extra. SES would suggest that instead, a cash transaction levy must be introduced and they must come to the central government to recover the cost of currency management. 

6) To encourage credit / debit card payments, the settlement cycle must be reduced from monthly to fortnightly on mandatory basis; otherwise, it will give rise to unhealthy competition.
 

7) Capital gains tax on traded security should be calculated by the tax department by linking PAN and demat account. The assessee should be required to only file for exemption, if any, from the tax assessed. 

8) Last but not the least, funding to political parties should come under the purview of Right to Information and income tax authorities. Such funding needs to be disclosed to the tax department and matched with the spending in various election campaigning. The ruling party as well as the Opposition should ensure that nobody is excluded from scrutiny. And, eventually, the country should move towards state funding of elections. 

READ OUR FULL COVERAGE ON THE MODI GOVT'S DEMONETISATION MOVE