Taxation gains

With reference to “The demonetisation puzzle” (November 7), if we look at the demonetisation exercise on a standalone basis, it does appear to be a conundrum extraordinaire. The disruption cost caused clearly outweighed the intended objectives in the short term. However, if it is seen as one of the pieces in a jigsaw puzzle, one might not be surprised especially if he looks at the series of economic events or measures unfolding in its aftermath.

It is a no-brainer that the menace of black money cannot be wished away just with the banishment of old high-denomination notes. To tackle it, a multi-pronged approach, covering the structural issues, needs to be adopted. The government of the day has decided to address the bigger issue of corruption and black money in a more comprehensive way covering both short-term and long-term measures. The continued stress on digital payment, deregistering of shell companies, sharp focus on benami properties, among others, indicate such an approach.

Implementation of the goods and services tax, with a resolve not seen in the past, also indicates the government’s intention to make the overarching taxation architecture transparent and technology enabled. No doubt, it is still a work in progress and the teething troubles, of varying intensity, will get smoothed out over time. With a greater proportion of people coming under the tax (indirect and direct) network, the government will have more leeway to make the taxation structure less burdensome and thereby obviate the propensity to evade taxes through illicit means.

Economic decision-making, especially of the nature and proportion of India’s demonetisation gamble, is fraught with many unknowns and hence could entail serious consequences. Yet, one year is not enough to judge the efficacy and impact of such a measure on the economy in general and on the behavioural dynamics of people, in particular. Notwithstanding this, when we try to see the demonetisation exercise as part of many reforms, it becomes a bit easy to appreciate its limited roles at least in the short term.

 

Y P Issar   Karnal

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