Updated: December 14, 2016 11:06:17 am
Finance Minister Arun Jaitley on Tuesday said currency withdrawal would help the government in lowering tax rates, both direct and indirect, in future. The government is expecting to collect higher taxes as more transactions will come under the tax net due to currency withdrawal decision, he said. As the tax base expands, this can be used in lowering tax rates. He said the Reserve Bank of India would significantly inject currency in the next three weeks to ease cash crunch.
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“The advantages are, so much money which was 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, which will now be recovered. Future transaction would be substantially digital and once they are substantially digital, they would come in the tax net,” he said. “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 said, as per a statement issued by the finance ministry. The peak rate of direct taxes (personal income tax and corporate tax) is 30 per cent plus cess and surcharge, while the indirect taxes on goods total up to 27-30 per cent including Central and state taxes.
“The banking system will have lot more cash in it and therefore, it’s ability to support economy with low cost cash, that is cash whose capital (cost) is much lesser, would be much higher. Obviously with all these advantages, the social cost also on the system will go down. Therefore, the cash used for bribery, for counterfeit currency, for terrorism, for evading taxes itself will go down,” Jaitley said.
He warned that people accumulating large amount of cash unlawfully will have to pay a “very heavy price” for such malpractices. “It has also come to the notice of the government that some unscrupulous people including some in the banking system and some others have been trying to subvert the system once again and accumulate large amount of cash unlawfully. Obviously, there is a breach of law in this and this is a step which hurts the economy. And therefore, all agencies are keeping an eye on this. They will investigate this matter and all those who are found indulging in these malpractices will have to pay a very heavy price for what they are doing,” he said.
Currency withdrawal, along with other steps such as restrictions on cash spending being subjected to PAN declaration and the proposed Goods and Services Tax, would bring down cash transactions and the levels of tax evasion, he said. The minister said the government is “rapidly completing remonetisation exercise” with the RBI injecting a large amount of currency into the banking system every day. “Significant amounts are going to be injected in next three weeks which are gradually bringing the pressure down.”
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