The new Curbs on Old notes
By: Amit Bhushan Date: 19th Dec. 2016
The increased scrutiny by RBI on deposit of old currency notes will help to curb the commerce on old notes. What probably is needed is to ensure that all company’s account (including institutions such as non-profit) have a Pan (permanent account number of income tax) and that company/institutions have only a single Pan and not multiple Pan numbers. There have been little scrutiny in this regards and this might blunt some of the edge for tax authorities since quite a few of the business entities may just go scot-free. While the government has improved policy measures that were possibly causing leakages of new currency notes (in bulk) amongst those keen to get them, it has still failed to trace overall number of incidents of large leakages of new currency notes from the system.
This would continue to give the political opposition an upper hand over the failure of government to bring corrupt to books, since it has only brought banks to tax some of the corrupt rather than targeting corruption. In any case the drive towards cash-less seems to have much less punch. This is because large institutions such as schools or health/medicine professionals operate on cash with the business owners preferring to pay them out of cash. Nearly the same is the case of rented properties or even low to medium range hotels where better discounts are available for cash and it also supports pilferage of service tax. The government has shown little resolve in these 3 key sectors of rentals, health and education to turn them into cash-less and this implies that generation of back-money would continue in absence of policy measures. These areas constitute a bulk of expenses in the life of most small and medium business owners and if a way is found to ensure that such expense are better made through bank transfers, then most business owners could be coaxed into greater tax compliance.
The government needs to look at incentives and dis-incentives for these sectors to promote greater use of the accounted transactions. That changing currency notes through demonetization and subsequent re-issuance of new currency notes would have little impact on the behavior of these sectors except for a small one-time jolt. While the jolt may have shaken a few larger sharks, but those smaller fries just resorting to cash transaction measures to avoid having brush with the authorities, may not have had any impact. The governance measures can be deemed a success only if they help change behavior of a larger mass of people and impact the sector in somewhat bigger way. In absence of this, the sectors would soon again tend on the ‘old normal’ path, rather than any new paradigm. It may be noted that schools here are an institutionalized segment mostly (in the private sector). The health care again is fast becoming institutionalized since private independent practitioners have a shrinking market as sophistication in medical technologies increases further. A mix of incentives and regulatory push can do the trick perhaps.
The other large segments such as the food and clothing segments have mixed bag of companies. While the producers in the food segment have little to fear any taxes, but the processing and trading entities here have an axe to grind to keep the businesses glued to cash. In the clothing segments again, the manufacturers as well as traders prefer cash since that helps them to escape the taxation dragnet as well as avoid reporting to various authorities that would increase the cost of compliance. Since the sectors have a mix of large, medium and small scale business entities, government taxation related interventions such as GST would help improve the compliance related situation amongst the businesses in these sectors.
Entertainment and logistics are again the next bigger sectors. While some intent is displayed on part of the railways, however it is airlines which seems to be leading the race although no one noticed the same. It is however the daily commutation segment which is the city bus services, which need to go cash-less for the impact to be felt on the common man. Again in the entertainment sector, the Bollywood or cinema medium dominate while we have a television segment which has now mostly gone digital with the boxes. The government should perhaps make it mandatory for the cable operators to allow subscribers to be able to access their bills online including various bill plans (and in local language/s). This would perhaps make the market more transparent and help push digital payments. With more push for internet based launches, booking of tickets in various cinemas is likely to go digital. As for sites, we still do not have sites which would show movie trailer and reviews at one place which also support local ticket books including promo packages. Guess some infra ramp would also help I this regard.
By: Amit Bhushan Date: 19th Dec. 2016
The increased scrutiny by RBI on deposit of old currency notes will help to curb the commerce on old notes. What probably is needed is to ensure that all company’s account (including institutions such as non-profit) have a Pan (permanent account number of income tax) and that company/institutions have only a single Pan and not multiple Pan numbers. There have been little scrutiny in this regards and this might blunt some of the edge for tax authorities since quite a few of the business entities may just go scot-free. While the government has improved policy measures that were possibly causing leakages of new currency notes (in bulk) amongst those keen to get them, it has still failed to trace overall number of incidents of large leakages of new currency notes from the system.
This would continue to give the political opposition an upper hand over the failure of government to bring corrupt to books, since it has only brought banks to tax some of the corrupt rather than targeting corruption. In any case the drive towards cash-less seems to have much less punch. This is because large institutions such as schools or health/medicine professionals operate on cash with the business owners preferring to pay them out of cash. Nearly the same is the case of rented properties or even low to medium range hotels where better discounts are available for cash and it also supports pilferage of service tax. The government has shown little resolve in these 3 key sectors of rentals, health and education to turn them into cash-less and this implies that generation of back-money would continue in absence of policy measures. These areas constitute a bulk of expenses in the life of most small and medium business owners and if a way is found to ensure that such expense are better made through bank transfers, then most business owners could be coaxed into greater tax compliance.
The government needs to look at incentives and dis-incentives for these sectors to promote greater use of the accounted transactions. That changing currency notes through demonetization and subsequent re-issuance of new currency notes would have little impact on the behavior of these sectors except for a small one-time jolt. While the jolt may have shaken a few larger sharks, but those smaller fries just resorting to cash transaction measures to avoid having brush with the authorities, may not have had any impact. The governance measures can be deemed a success only if they help change behavior of a larger mass of people and impact the sector in somewhat bigger way. In absence of this, the sectors would soon again tend on the ‘old normal’ path, rather than any new paradigm. It may be noted that schools here are an institutionalized segment mostly (in the private sector). The health care again is fast becoming institutionalized since private independent practitioners have a shrinking market as sophistication in medical technologies increases further. A mix of incentives and regulatory push can do the trick perhaps.
The other large segments such as the food and clothing segments have mixed bag of companies. While the producers in the food segment have little to fear any taxes, but the processing and trading entities here have an axe to grind to keep the businesses glued to cash. In the clothing segments again, the manufacturers as well as traders prefer cash since that helps them to escape the taxation dragnet as well as avoid reporting to various authorities that would increase the cost of compliance. Since the sectors have a mix of large, medium and small scale business entities, government taxation related interventions such as GST would help improve the compliance related situation amongst the businesses in these sectors.
Entertainment and logistics are again the next bigger sectors. While some intent is displayed on part of the railways, however it is airlines which seems to be leading the race although no one noticed the same. It is however the daily commutation segment which is the city bus services, which need to go cash-less for the impact to be felt on the common man. Again in the entertainment sector, the Bollywood or cinema medium dominate while we have a television segment which has now mostly gone digital with the boxes. The government should perhaps make it mandatory for the cable operators to allow subscribers to be able to access their bills online including various bill plans (and in local language/s). This would perhaps make the market more transparent and help push digital payments. With more push for internet based launches, booking of tickets in various cinemas is likely to go digital. As for sites, we still do not have sites which would show movie trailer and reviews at one place which also support local ticket books including promo packages. Guess some infra ramp would also help I this regard.