Banning High Denomination Notes - Surgical Strike 2.0 !

The Hon’ble Prime Minister of India on 8^th of November 2016 took a very bold and significant decision in the context of money circulation. It is one of the best decisions taken to restore the pride of the honest citizen. Demonetizing Rs.500 and Rs.1000 notes with immediate effect would result in massive creation of waste paper since persons with illegal cash; cash obtained through corruption; cash obtained through anti-national activities and cash which is not accounted have become worthless. There will be some pain to a large segment of public but in the larger interest of the country, this pain should not become an issue.

The Hon’ble Prime Minister, the Finance Minister and the Revenue Department should not stop with this and should explore the following suggestions.

Banking outreach

In many sectors such as construction, textiles, leather, food processing and organized agriculture there are weekly cash payments to the workmen and labour. Before the system continues with the payment through new currency, a healthier culture of bank account transfers should be implemented and for this purpose, bank account opening melas should be held in the premises of the Company or the sector which handles workmen related cash payment. The opening of accounts must be smooth and easy.

Jewellery sector

News reports throughout the country indicate that on the 8^th of November and subsequently people have been thronging jewellery shops and purchasing gold and jewellery.  While the income tax law requires production of PAN details for purchase of goods of a value more than Rs.2 lakhs, in many places customers tend to give multiple PAN numbers and obtain bills in different names. The Centre and the State can simply be satisfied with the excise duty and VAT collections but if the Prime Minister’s dream of eliminating black money and corruption is to be achieved then the Government cannot be a mute spectator. The following should be done by a team of dedicated, reputed and honest officials:

(i)  All sale transactions after 8.00 pm on 8^th of November should be checked;

(ii) Invoices needs to be checked for PAN related issues;

(iii) Based on the quantum of purchase on the said dates, appropriate notices should be issued after matching the returned income.

Money Laundering

It is very likely that money laundering schemes in different forms would surface and media reports indicate that firms with cash balances in their books but without actual cash are in demand. While the Government cannot chase every person or watch every transaction there is always a culmination of a transaction which is the withdrawal of the new currency by the accommodating firm to pay off the person seeking the laundering services. Apart from getting the bank to provide details of the persons withdrawing huge amounts of money in the new currency, the Government can think of a withdrawal tax of 0.001% on cash withdrawals from bank at a time of an amount exceeding Rs.1 crore. The tax should be payable by way of deduction like a TDS and should appear in the Form-26AS of the person making the withdrawal. If the amounts are huge then notices can be issued to the accommodating firm as to the status of the cash withdrawn.  If the cash is not available or the expenditure cannot be explained, the Income Tax Act can takeover.

Political parties

The Prime Minister of India must take a decision which no other person can take.  Section 13A of Income Tax Act provides that any income by way of voluntary contribution received by a political party from any person shall not be included in the total income. While books of account are required to be maintained there is no reason why this income should be exempt from income tax. When the salaried class pays full tax or when any businessmen or professional pays tax or when a hospital pays tax, there is no necessity for exemption for a political party.  Union Budget 2017 should be used for deletion of Section 13A of the Income Tax, Act.

Future corruption

While a significant portion of illegal cash and corrupt cash will become paper, the Government should take steps to prevent future corruption and illegal cash with the new currency.  For this purpose, the following steps can be explored:-

(i) Wherever discretionary powers are available to any administering authority there is a window for corruption. Wherever approvals are contemplated, to the extent possible they must be made online and systems driven to avoid any interaction.

(ii) The biggest cause for delay in any approval mechanism is the legacy of paper work which was the by-product of British Rule. The complex forms both in terms of parameters and numbers will have to be reviewed and eliminated.

(iii) Every approval mechanism must be governed by specific time limits stipulated in the legislation.  Failure to grant or reject within those time limits should result in deemed approval with a departmental enquiry as to why there was delay. The application process and the Annexures must be transparent and known to all through the website of the Department.

(iv) Honest officials within any Department should be identified and promoted as heads of the Department or made as part of the Vigilance Committee of that Department.  Mere rewards are not enough for these wonderful soldiers.

(v) Increased consumerism is also one of the reasons for corruption since the child who watches the products on television is likely to demand the same from the poor parent.  Therefore, salaries of Government Officials should also be increased with strict control to ensure that corruption results in severe consequences.  The tradeoff for not being corrupt should be the increased salary package.

(vi) Cameras must be installed in all tax, revenue, building approval and related departments.

(vii) Registration of Documents should be de-mated so that the land related frauds are eliminated.

(viii) Stamp Duty can be reduced to 2% so that there is no enthusiasm for undervaluation of property and further this would also ensure that realistic values are reflected in the system. 

There is an opportunity for the country as a whole to redeem itself. Instead of accepting corruption as a way of life, a new beginning must be made to redefine our way of life and restore glory to this wonderful country.