Tuesday, December 20, 2016

Blackmoney: Govt. listened to us on Tipoff email id

Blackmoney: Govt. listened to us on Tipoff email id

On 15th November in our article titled "Blackmoney: Politics & Way Forward" we had suggested that "The Government can setup toll free numbers, email ids and fax numbers dedicated to unearthing black money where any person can send a mesage about instances of blackmoney generation".

The Government has in fact listened and created an email id blackmoneyinfo@incometax.gov.in where people can send email to tip off the authorities about blackmoney.

It is a good way for the tax authorities to get information on blackmoney. However, given the paucity of staff, whether they can really act on it or not is another question. The Government may try to find out the names from these tip offs and match with their database to see if they need to take action on these guys. If there is concrete information provided in the tip off email, then I think it would be easier for the Government to take action. Generally the informant is paid 20% of the amount recovered. However, whether Government will do so based on the tip off email is not known.

Technically, any undeclared wealth is blackmoney. So whether income tax authorities will be interested in the small blackmoney offenders or not is not known. For example, recently there was a petition by people saying that the landlords should be caught as they insist on house rent payments in cash. In many cities the house rent is completely in cash. In cities like Delhi, the house rent is divided into two parts and two cheques are taken often in the name of landlord and his wife. One is shown as rent and the other as rental for lighting and other fixtures. And a third part is taken in cash in lieu of water bills. Though Delhi Government charges a pittance for water, often the landlord has to run his motor pump to pump water from the municipal pipeline and fill his overhead tank. These charges are often 60,000 and above per year per flat. Will the IT department prosecute a landlord for couple of lakhs of undeclared income per year?

Remember that there are millions of such landlords throughout India. Brining them under the tax net will result in more income tax for the Government and that can help lower the tax net.

However, there is also a negative side to the story. These information on the hands of unscrupulous Income Tax officials will only result in extortion for personal benefits and can create an era of uncertainty due to raids. People can also send false information in the tipoff email to implicate someone. So the Income Tax authorities need to do a thorough job.

The main question before us is the blackmoney generation by various businesses which are outside the tax net. A tea stall owner in bangalore sells tea at 15 rupees per glass and sells about 500 glasses of tea in the evening. There are also other snacks. So this small tea seller earns minimum 20 lakhs per year just from tea. Add the income from snacks like biscuits, samosas etc. These are all sold in cash. Ofcourse they are starting with PayTM as well. A plainclothes taxman standing infront of the stall in an afternoon can give very accurate results for their assessments. Sending information about such businessess should be encouraged in the tip off email id blackmoneyinfo@incometax.gov.in . Unfortunately, people feel that these are small shops and they won't report against them. If such businesses can also be brought under the tax net then it would be good for the economy. So guys and gals keep on sending emails to the Government about blackmoney.

Wednesday, December 14, 2016

Demonetisation: Income Tax department faces massive challenge

Demonetisation: Income Tax department faces massive challenge

The fact that Notes Ban is more work for the honest and an opportunity for others is being proved time and again.

The #NotesBan announced on 8th of November resulted in unprecedented chaos. People have waited in huge queues to deposit their old 500 and 1000 rupee notes. There were initially huge lines to exchange these notes till the Government rescinded on their promise and stopped the notes exchange. There is still a huge queue infront of ATMs whenever money is loaded in the ATMs as most of the times there is no cash in the ATMs as well as in the banks.

There were indeed some people who had undeclared income stored as cash and they were initially stunned. But later they found out easy route to exchange their old notes by giving commission. Overnight a cottage industry sprung up to exchange old notes. Unscrupulous bank employees and Income Tax commissioners have teamed up to exchange old notes. So the people pay anywhere between 30 to 35% to exchange their notes.

The Government came out with Scheme to penalise people by charging a tax of 50% on their unaccounted deposits in the banks and these money had to be locked for 4 years. Obviously people prefer to pay commission as it is cheaper and also no one now believes that the Income Tax authorities won't harass them later.

In the Income Tax department the honest employees and the lower level staff are not involved in these commission business. They find that there is much more work involved due to the #Demonetisation .  Two income tax staff associations have now written letters to the Prime Minister Mr. Narendra Modi. Income Tax Gazetted Officers Association and Income Tax Employees Federation have said that Personnel and Infrastructure are severely short.

They have written that "The entire department is totally demotivated due to the huge shortage of manpower in lower cadres and huge stagnation in officers's cadre. Must have adequate manpower, especially at key positions, be provided with proper infrastructure facilities so that the workforce stays motivated, committed and highly spirited at this moment".

Clearly it would be a tough task to inspect all the bank accounts. The Income Tax department can ofcourse generate and send queries to lot of people. However, following up their responses and deciding on those would be a massive challenge. That is not going to happen soon enough for the Prime Minister to get political mileage. So there is indeed lot of Psychological warfare inform of announcement threatening people of dire consequences if they don't announce their blackmoney. Read more: http://arjunaubacha.blogspot.com/2016/11/psychological-warfare-in-demonitisation.html

It seems to be strange that the team briefing the Prime Minister never thought about these issues before strongly suggesting the PM to go for demonetisation. 


Demonetisation & The Big Digital Divide

Demonetisation & The Big Digital Divide

India is a huge country with a massive 1.3 billion people. This massive population is not homogeneous. There is a big division among this people. Apart from language, castes, religions Indians are also divided by the wealth they possess ie. whether they are rich or poor, literate and illiterate etc. Now, there is another stark division between Indians, that of digital literacy.

Since November 8th 2016, it has been a difficult time for people in India as the Government of India in a sudden move banned the Rupees 500 and Rupees 1000 notes. Now the Government is pushing for digital payments as it believes blackmoney generation is mostly through cash. This push for payments through online or digital wallet mode has now has focused on the digital literacy or awareness about online and digital payments.

Despite smartphone penetration, there are many Indians who despite being well-to-do don't own smartphones. They are not comfortable with internet and mobile technology. They still do their banking via cheques, bank drafts etc and prefer to make payments in cash. They still struggle to draw their money through ATMs. There are many who forget their ATM pin numbers and write it down behind the ATM cards. This massive population, despite being literate in the conventional sense is not aware about e-banking and mobile technologies. It would be difficult for these people to learn to start using cashless mode for their payments.

These days this educated mass of retired, senior citizens and others are feeling as if they are illiterate. "I don't know this PayTM thing" is the general refrain. At the fag end of their careers, a sense of inadequacy is haunting many such individuals. India Today is changing too fast for such citizens. Ridiculed by the 20 somethings and other people as oldies and other choicest abuses, the older generation is slowly bowing their heads for something which they don't need but is thrust upon them. The respect for the older generation is all but vanished. Is this the price to pay?

If people hurtle into depressions, then no one will know as in India the society is not mature to handle depressions and mental health issues.

Demonetisation will also lead to more and more Government departments completely shifting to e-tender modes. Today, many small time businesses find the e-tenders cumbersome and a big technological challenge. The way e-tenders have been implemented till date is very cumbersome. It is not user friendly. So unless people master the various technologies, it will be difficult to compete as they are already disadvantaged.

If the Government can come out with well thoughtout applications and deploys a huge number of people to increase the awareness then slowly people may start understanding the intricacies. However, there are many big ifs involved here and the Government seems to be pushing through things without much of prior thought. Hope there is some light at the end of the tunnel, so that the common man and woman can learn and pick up the threads in their lives.

Wednesday, December 7, 2016

Demonetisation: Human behaviour is like War

Demonetisation: Human behaviour is like War

Prime Minister Narendra Modi has equated demonetisation as war, a war against blackmoney. Recent events prove that people believe Mr. Modi that this is war and are behaving as such.

The ban on Rupees 500 and 1000 notes has indeed created a warlike situation. The huge inflation during the UPA days, when food inflation was around 18%, had resulted in greater requirement of 500 and 1000 rupee notes. So when the Government announced that all the 500 and 1000 rupee notes had to be deposited in the banks, people were forced to deposit those. And since new notes were not printed, the Government only allowed people to withdraw 2000 rupees per day from an ATM, if you were able to beat the queue.

The situation is very tough as people don't have cash in hand. Most of the economy runs in cash. People often stand in queue in front of the ATMs for hours and return empty handed when the ATMs run out of cash. So there are frequent fights, fisticuffs, hurling of abuses at each other and at bank staff that goes on. A recent report also brought out the further ugly side of people. One person in West Bengal while standing in a queue fainted and the people didn't care to pick him up. The person lay there for 20 minutes before police found and shifted him to a hospital where he was declared brought dead.

In a war zone people don't grieve over dead bodies as they don't have time to retreat in view of the approaching army. They just move on to save their lives. Their survival instincts take over and ensure that they can do anything to survive. In one instance of a airline crash, the survivors were known to have turned cannibals and ate the dead people.

Our present situation has become similarly bad. Scarcity has induced a warlike situation and now people don't care to help someone who is exhausted and falls down resulting in deaths that could have been avoided.

Life and death has no value for people today. Concern for life has vanished. The cash scarcity will continue for many more months as some reports say that the total capacity to print notes is only 300 crores a month whereas the total number of notes to be replaced is 2300 crores. Since this situation will remain for atleast six months, there may be longterm implications as people will henceforth get used to only thinking about themselves and not concerned about others. A community succeeds if it stays united. When people lift each other up, then society moves up. When people only mind their narrow selfish interests, it causes great harm to society as the society is torn apart. In such times, it is easy to sow seeds of conflict. Government should be worried that terrorists can take advantage of such conflicts.

Sunday, December 4, 2016

Is Mr Modi soft on Blackmoney holders?

Is Mr Modi soft on Blackmoney holders?

The Modi Government had run a Income Declaration Scheme (IDS) for people to declare their black money. The deadline for IDS 30th September. 64,275 people had declared black money under the IDS scheme totaling to Rs. 65,250 crores. The penalty under this scheme was fixed at 45%. So it was expected that the Government will get 29,362.5 crores under this scheme.

This had made the Modi Government tom-tom its success. It was said that this is much bigger than the Voluntary Disclosure of Income Scheme (VDIS) run by the Congress Govt. in 1997 as VDIS had got 33697 crores from 4.72 lakh people. At that time the Government had got tax of 9,729 crore under VDIS.

Though the Modi Government was declaring success vis-à-vis the previous VDIS, one should realise that the size of economy today is way bigger than in 1997 and the present value of 33,697 crore will be way much bigger.

Now, a series of events appear to blow a big hole in the IDS scheme.

First a person from Ahmedabad who was to pay a tax of 13860 crores declared that he didn’t have that money and had declared on behalf of others. However, other people didn’t give him the money to convert, so he can’t pay up. Next, a person in Hyderabad had declared 10,000 crores and it was found that he didn’t have even 1 crore and had just made up this story to get attention to his business.

This has resulted in the the total size of IDS declarations to drop by more than half and even smaller than the VDIS of 1997. It is to be seen how the Modi Government gives a positive spin to this disappointing news.

It should also be noted that last year, the Government had run a similar scheme for foreign blackmoney holders. There were only 644 declarations and only 2,428 crores of tax collection.

Now, the Modi Government has said that if anyone wants to declare their undeclared cash and deposits in the bank accounts then they will have to pay 49.9% tax. So this becomes the third disclosure scheme by Modi Government within a year.

Three voluntary disclosure of income schemes by the Government in such a short period of time is virtually unheard. People will lose their faith in the system and will feel that honest tax payers are being discriminated against. Blackmoney holders will feel that they will always get some more opportunity later and will be willing to take a chance.

This doesn't fit in with the narrative of a strong Government. The Government now appears to be begging before people. Mr Modi and his ministers should think hard why they are repeatedly failing.