Most probably, a much awaited move is in the pipeline from the Government side. The news has not come from unknown sources. But a credible source, the Finance Minister himself! Mr. Arun Jaitley has given some hints that there is a possibility of reduction of both direct and indirect tax rates. After demonetization drive, more than Rs. 12 lakh crores has come into banking net. Because of this, most of the transactions will come into the vigilance of tax departments which in turn will raise the tax collection compared to earlier. The move has also enabled banks to lend more money for those who need it.
With the same intent, Government of India has been promoting digital payments and moving towards less cash economy. Mr. Jaitley said, “So much money…operating as loose cash in the system has today come into the banking system. It has to be accounted for…where taxes have not been paid will now be recovered. Once they (black money hoarders) are substantially digital, they will get caught in the tax net. Therefore, the future taxation level would be much higher than what is currently being collected. This would also enable the government at some stage to make taxes more reasonable which will apply to both direct and indirect taxes.”
He explained the government’s intent further by saying “Demonetisation of Rs 500 and Rs 1,000 notes, together with other reforms such as the proposed goods and service tax implementation and linking of cash spending to PAN declaration, would reduce corruption in society.”
Jaitley warned the officers involved in corrupt practices that they will not be allowed to go unpunished. “Obviously there is a breach of law in this and this is a step which hurts the economy. And therefore, all agencies have an eye on this. They will investigate this matter and all those who are indulging in these malpractices will have to pay a very heavy price for what they are doing,” Jaitley said.
Since there were many reports about efforts of people with black money to convert them into white, the government has brought in another measure. Taxation Laws (2nd Amendment) Bill, 2016 has been introduced earlier this week. It seeks to tax unexplained money deposited in banks after demonetization at the rate of 50% under a declaration scheme while it could go up to 85% for those caught by the tax department.
Mr. Jaitley was quite confident about this measure to curb tax evasion. It was evident when he said “It is going to bring down cash transactions in the society and it’s going to bring down levels of evasion as far as taxation is concerned.”
PM Modi had said in his speech in Goa, soon after returning from Japan, that demonetization was not the only measure to curb black money but many more are on their way. The reduction in tax rates will definitely incentivize people for standing by the government despite the difficulties to get cash and do regular transactions. However, this should focus more on reducing direct taxes along with indirect tax, because it will be more progressive in nature. Dr. Subramanian Swamy, one of the celebrated economists has been propagator of totally abolishing income tax. He has been putting forward his ideas towards tax reforms for quite long time. The Government of India should consider inputs from various economists and make the whole taxation system more simple and robust. Optimism towards more economic reforms in the coming days still remains very strong.
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