By TIOL News Service

NEW DELHI, JAN 08, 2017: IN his Article titled 'Demonetisation - A Look Back at the last Two Months', the Union Finance Minister, Mr Arun Jaitley, has said that the direct and indirect tax collections in India continue to suffer as India is a hugely tax non-compliant society. What substantiates such a proposition are the income tax return filers data. As per Mr Jaitley, in the year 2015-16, there were only 3.7 crore assessees of 125 crore population, and out of these, 99 lakhs declared income below Rs.2.5 lakhs and paid no taxes; 1.95 crores declared income less than Rs.5 lakhs; 52 lakhs declared income between Rs.5 to10 lakhs, and only 24 lakhs declared income above Rs.10 lakhs.

He has said that expenditure required for poverty eradication, national security and economic development have to be compromised with on account of tax non-compliances.  Mr Jaitley has observed, "For seven decades the Indian “normal” has been to undertake transactions partly in cash and partly in cheque;  “Pucca” and “Kachha” accounts are a part of the business language and tax evasion has been considered as neither unethical nor immoral.  It was just a way of life.  Several Governments have allowed this “normal” to continue even though this compromised with larger public interest.  The Prime Minister’s decision is intended to create a new “normal”.  It seeks to change the expenditure pattern of India and Indians.  It is obviously disruptive.  All reforms are disruptive.  They change the retrograde status quo.  The demonetisation puts a premium on honesty and penalises dishonest conduct."

Mr Jaitley further said, "Paper currency is a zero interest anonymous bearer bond. It has no name or history attached to it. Crime can take place with or without cash but excessive cash as a medium of exchange is favoured by the underground economy. It results in non-compliance in the matters of tax payments which creates an unjust enrichment in favour of the evader as against the poor and the deprived. Mountains of cash money reach tax havens through the hawala route from the original paper currency. Cash facilitates real time untraceable payments. Cash is the medium which funds bribery, corruption, counterfeit currency and terrorism. Ethical and developed societies aided by technology have consistently moved towards banking and digital transactions as against the excessive use of cash.  Paper currency opens the doors for many vices. When Governments are able to collect more tax from tax evaders, they are in a better position to collect less tax from everyone else. Reducing cash may not eliminate crime and terrorism but it can inflict serious blow on them.  States have shown that the stores of cash do not disappear on their own till Governments take active steps to reduce the quantum of paper currency."

The Finance Minister also pointed out that the fact that large quantum of high denominational currency has been deposited with the banks does not render this money to be legitimate cash. He further said that black money does not change its colour merely because it is deposited in bank. "On the contrary, it loses its anonymity and can now be identified with its owner. The Revenue Department would thus be entitled to tax this money. In any case, the amendment to the Income Tax Act itself provides that the said money, if voluntarily declared or if involuntarily detected, would be liable for differential and high rates of taxation and penalty," he added.