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Sunday, May 22, 2011

How India can get rid of black money?

Some time ago, there was an article in Marathi about ways to get rid of black money in India and on a boarders request I had translated that in English.
Here I am posting that article with Marathi content credit to the original writer.

"The author condemns the bigger denomination of  currencies in India and according to him denominations above rupee 50 should be revoked.
Because of higher denominations unemployment, black money, corruption, inflation and the recession have been spiraled up.
To cast off all the aforesaid problems denominations above Rs. 50 should be banned.
An economist from Aurangabad is wandering all over the nation to raise  awareness.
To succeed in his economic revolution dream, he is propagating his theory to masses using various media (books, net, TV.)
Having seen this theory PM and the president are awestruck.
President Ms. Pratibha Patil uttered –“It shall be the most enjoyable moment of my life when I shall sign over this bill”.
The name of this revolutionary man is Anil Bokil.
Per capita income of USA is 40,000 $ while the biggest denomination of the currency is $100, ie the ratio of Per capita income to highest denomination is 400; while in India the ratio of per capita income to highest denomination is only 23.
For a per capita income of 23,000 rupee, there is no need of highest denomination to be as big as 1000 rupee.
Due to this anomaly, black money is generating. Majority of transaction are happening through cash route instead of banking channels.
These cash transaction never come into the investigation and parallel economy is being strengthened.
According to Bokil , in India 80% of all transaction happen through cash route while in developed countries 90% of transactions happen through banking channels.
On 11/9/01 WTC in USA was attacked, followed by an attack on the Indian parliament on 13/12/01; USA succeeded in destroying Al-kaida network, but India could not destroy Lashkar-e- Toiba (LeT) network.
The reason is, US freezed all accounts of Al-Kaida, while in India majority of transactions happen through cash route, freezing few accounts went fruitless.
On 14/7/69, then USA president Richard Nixon revoked all denominations above 100 $.During that time huge black money was being generated in USA.
To destroy the parallel economy in India, all denominations above 50 should be revoked.
Per day income of 78% of population of India is bellow 20 rupees.
According to RBI denomination of 100 and above (500, 1000) comprise 92% of the total denomination in circulation. This means govt. itself is providing stimulus to cash transactions.

Another anomaly is our tax system. Tax evasion has become human tendency, that’s why govt’s emphasis is on collecting more indirect tax than direct tax.
Common person pays 30-32 different types of taxes that too inadvertently .When one buys soap he pays 4-5 rupees tax to the govt under various tax heads.
In true words India’s tax system is very complex and difficult to decipher, even a CA finds it difficult to explain it in the lucid language.
If a TV set costs 5000 in Mumbai, it may cost 5500 in Panwel, while one can get the same for 4500 in MP.
This is because of sales tax structure; a commodity is available at different prices across the nation.
This helps the parallel economy to grow .To much chagrin, value of rupee varies across the nation.
Because of these complexities, traders trade in black by buying commodities without bills
and due to parallel economy the nation is deprived of the due revenues to the tune of billions rupees.
That’s why tax system needs to be simplified. If tax burden is reduced tax evasion shall be less and people shall start buying guaranteed things with bills.
Bokil suggests simple tax system-
Barring the import duty, all taxes (central govt, states and municipal corporation) should be revoked, instead a transaction tax at specific rate (e.g. 2%) should be charged on all transactions taking place through banking channel. As the tax shall be deducted at the banking level people and corporate shall be saved from the hustle-bustle and the chaos which takes place during the end of the financial year.
As there should be no tax burden on poor’s, there should be no tax on the cash transactions.
Suppose if I gave u 100 bucks, my account shall be debited by 100 rupee, while yours account shall be credited by 98 rupees only.
The balance 2 rupee shall be deducted as tax and shall be distributed amongst central, state and municipal bodies.
Revoking the indirect tax shall result in cheaper goods and commodities. Today we are vary of cheap Chinese products, having adopted the aforesaid system we no longer shall be.
Cash transactions above 2000 rupees should be considered  illegal. By this there shall not only money but the capital to be deployed.

Bokil suggests the simple tax system as follows-

(1) Barring the import duty, all other taxes should be abolished.
(2) Instead transaction tax at a specific rate should be applied at banking level.
(4)BAN Denominations above 50.
(5)Cash transactions above 2000 rupee should be considered illegal.
(6)No tax on cash transactions. This shall bring the black money into the main stream. Whole economy shall be purified "


Vidyasagar said...

I would like to see this transformation happening!!!

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