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Old 11th January 2017, 22:10   #2011
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by msdivy View Post
If Government had planned the note ban
http://indianexpress.com/article/bus...sabha-4467235/

It seems the govt did push for it after all
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Old 12th January 2017, 01:37   #2012
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by sachinpk View Post
What needs to be done (which I feel the government would do) is to ensure that there is no liquid cash available to do large transactions. The problem which existed was 85% odd money circulated in India were in Rs.500 & Rs.1000 notes. And this led to large scale hoarding. What is required would be to have large denomination of smaller notes available plenty. In India every excuse (especially the one of "ease of use") is generally given only to byepass some law or make corruption easier.
Exactly, glad we're at a neutral stance as far as this raging countrywide debate goes. I'm all for plenty of small change available, i.e Rs.10, Rs.20, Rs.50 and Rs.100, as also plenty of Rs.10 and Rs.5 coins so that we have a range of permutations and combinations to work with, and also aren't "forced" to go digital or card unless we truly want to. Yes, DD's and cheques must be encouraged too, they are safe, secure and accountable in the end. Any move that is rushed way too fast and publicized to total-propaganda levels is an instant red-alert for me, unfortunately most cannot see it coming.

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Originally Posted by msdivy View Post
Thanks for your candid views. On Nov 8th, I was one of the folks who got excited about the announcement of note ban. I was hoping the Government would announce further measures and introduce new legislations to nip black economy. But nothing happened. All we got was new formula every day, sometimes every hour on rationing of currency notes by RBI. When they introduced the 2000 rupee note, I knew, they had blown it. The Government had not put much thought into the effort. Demonetization is a bludgeon which missed the target. So what we have now? We are trying to build a cashless economy where the majority don't have debit or credit cards.
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Originally Posted by Chetan_Rao View Post
My question about the 2000 Rupee note was borne out of the same perplexity. Personal opinion, this was more carpet bombing than surgical strike, and the proverbial rats and cockroaches have found a way to survive, as they always do.
I read both of your posts, took sometime to think of it and came up with some theories.. now these may be "out" there but I've tried to keep it as grounded as possible. Strictly in the financial sense, the Rs.2000 notes were introduced because :

1) Lets assume that, since up to Rs.2,50,000/- was legal to be deposited back into the bank per individual, as cash, that roughly a million people deposited that instantaneously (this is a very conservative figure as each family member can put the legal amount split from a larger amount), yet for easy calculability we'll keep it to a million who deposited and also initiated withdrawals from day 1.

This would mean 2,50,000 x 10,00,000 = 25,000 crores

The sheer amount of notes that would've been needed to be printed as replacement would've been too large (also to be elaborated in point 2), Rs.2000 notes provided 2x quicker printing to replace the old notes which had years of time to come into the market. This is probably why Rs.500 wasn't focussed upon during that time. The country has a majority cash economy and the Rs.2000/- notes kept everything afloat, covering the salaries, rations, working/operating costs, transportation, fuel etc.

2) Rs.2000 notes also might've made transporting cash easier to each location as the means of transport can carry twice as much value of currency in the same space as compared to Rs.1000/-, the same goes for ATM machines which could hold twice the value of currencies so that each person would get more per note and more left for others since the withdrawal values were limited.

3) In the business circles, rumours have been floating for long that Rs.2000/- notes will be demonetised ultimately, since they believe that note can encourage a black market yet again. I believed it, but then again there's paranoia (aka valid though not fully proven fear of wrongdoing) and there's hallucination (full blown imagination), if there is a 2nd round of demonetization then the government is purely hallucinating, because the effects of the 1st round of demonetization have been so large that the 2nd round would give fully diminished returns, specially since the Rs.2000/- notes have been withdrawn from the back account against a legal monetary holding. Yes some may have gotten their hands on more notes that others but surely the numbers would be 1/100000th of what it was 2 months back. I feel the best way is to slowly withdraw the Rs.2000's when they introduce the new Rs.1000's (as had been said before).

A black market will always exist, and in small numbers its even healthy. Realisticially, the only problem black money created was inflation in certain sectors like real-estate, luxury goods, gold jewellery etc. The next step should be targeting real-estate and rental sectors, one of the key factories of unaccounted payments. Most of the cash transactions in the country, be it uber-expensive restaurants, hotel stays, airline tickets, cabs, consumer durables etc are already heavily taxed. The government makes enough already so this is as far as they should go.

Also a slight mathematics here, I'm writing this for my own reference too. Now I don't have any loans and will never take one, but lets just assume for ease's sake that the loan interest percentage is about 10%, lets also assume that return on deposits are about 7% in FD. Suppose overnight the banks get 2.5 lacs per account for say, 1 million accounts, they have to :

- Give potential FD interest rate @ 7% for 25,000 crores = approx Rs.1200 crores after tax (about Rs.500 crore).
- Banks may be flush with funds, they can either settle losses or hand out more loans cheaper, but then again its all the same with no great benefit to anyone.
- Loans for homes and cars will go down (and they have) thus reducing banking income.
- Registration taxes for properties will slow down as purchasing power isn't optimal.
- Luxury market will go down and it has thus reducing massive tax receivables.

To me, money is money, upto a certain extent, it has no colour per se. The problem is in the holdings in excess of 7-8 digits since they are not in effective circulation and drive up values of almost anything sky-high.
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Old 12th January 2017, 08:34   #2013
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by msdivy View Post
On Nov 8th, I was one of the folks who got excited about the announcement of note ban. I was hoping the Government would announce further measures and introduce new legislations to nip black economy. But nothing happened.
So am I (excited). But I'm not sure what you expected to happen in these two months. You mention legislation - as you know, that can only happen when parliament is in session, and since 8/11 there has been only one, the winter session, whose agenda was decided long before 8/11. The session to look forward to is the budget session which starts on 31/1, when the budget will be presented.

And it is not as if there haven't been legislation or executive action in past sessions. Some:

- The Real Estate Bill that endeavours to bring in transparency to the sector. I hope you'll agree with me that the sector is a major black money magnet.

- Renegotiated treaty agreements with Mauritius, Singapore & Cyprus (routes through which black money is rerouted to India).

- Agreement with Switzerland to exchange information on black money holders.

- Various disclosure schemes (some have failed, though).

- TCS on cash sales above 2L.

- GST.

There could be more, but these are the ones I can recall off the top of my head. The PM's December MkB address indicates benami property will be the next item. Here is an analysis of what he might be intending to do: http://www.firstpost.com/business/ex...s-3169798.html
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Old 12th January 2017, 08:39   #2014
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by dark.knight View Post
.....came up with some theories.......
All points worth thinking about, but the note itself flies against the basic stated premise of the current initiative.

The higher denomination definitely made logistics more effective, but that argument extends to hoarders too. Also worth thinking as someone pointed out, the 2000 Rupee note was arguably in consideration much before demonetisation, so another red herring whether these two are directly related.

As for demonetisation itself, I try to refrain from commenting (and not just on this forum) because a lack of verifiable data has pushed the narrative into rhetoric mode, and any comment draws out the predictably loud, nationalistic, 'Us vs. Them' rhetoric.

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Old 12th January 2017, 08:48   #2015
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by sachinpk View Post
And I am sure, cash would continue to exist in India. Sooner or later tea vendors, peanut vendors (who currently use PayTM) may fall back to cash based transactions.


What needs to be done (which I feel the government would do) is to ensure that there is no liquid cash available to do large transactions.
Not only the Paanwala, even bigger traders are trying to switch back to cash. Why, they got Swipe machines, but were then advised that you are opening yourselves up to 'trouble'. Why, most of these chaps were paying little or no tax. Now if there is a nett profit of even 50,000 in a month it adds up to 6 lakhs a year, so the chap has to pay tax on that amount. I am glad if he is caught and penalized. Freeloading has been going on for too long.

Also, why not tax of our netas, ie Agricultural Income tax.

I think the reason that the 24k per week has not been raised is to ensure reduced availability of cash. I got my wife a Debit/ATM card on my account for my wife, to encourage her to make transactions in card. However, old habits die hard. Let us see how far we succeed.

Last edited by sgiitk : 12th January 2017 at 08:49.
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Old 12th January 2017, 14:42   #2016
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by sgiitk View Post
Not only the Paanwala, even bigger traders are trying to switch back to cash. Why, they got Swipe machines, but were then advised that you are opening yourselves up to 'trouble'. Why, most of these chaps were paying little or no tax. Now if there is a nett profit of even 50,000 in a month it adds up to 6 lakhs a year, so the chap has to pay tax on that amount. I am glad if he is caught and penalized. Freeloading has been going on for too long.

Also, why not tax of our netas, ie Agricultural Income tax.

I think the reason that the 24k per week has not been raised is to ensure reduced availability of cash. I got my wife a Debit/ATM card on my account for my wife, to encourage her to make transactions in card. However, old habits die hard. Let us see how far we succeed.
I think this has mostly to do with the payment charges

My local medical shop - one which never accepts card payments suddenly busted out a card machine during demonetization. but it has silently disappeared and he is again asking for cash. But don't think he is evading tax - for my parents medicine (which comes to around 4K per month) they were willing to accept cheque. This is despite them having a card machine.
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Old 12th January 2017, 14:58   #2017
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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But don't think he is evading tax - for my parents medicine (which comes to around 4K per month) they were willing to accept cheque.
Cheque with the "Pay To" details bearing their true shop name or owner's name etc.? Or a "self" cheque, or a cheque having some person's name? The second type of cheque will not help in detecting tax evasion. Lot of people when accepting cheque (or even online payment) asks the payment to be made to a different person (in many times wife of the actual person who needs to be paid).
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Old 12th January 2017, 15:39   #2018
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

Not everyone preferring cash is evading taxes. We run a retail store with high volume low margin products. Everything is invoiced and taxes paid. It's simply not possible to pay 1.2-1.8% to visa or MasterCard. Our regular customers pay via NEFT and we are encouraging people to move to cashless including BHIM app.
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Old 12th January 2017, 15:40   #2019
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by sachinpk View Post
Cheque with the "Pay To" details bearing their true shop name or owner's name etc.? Or a "self" cheque, or a cheque having some person's name? The second type of cheque will not help in detecting tax evasion. Lot of people when accepting cheque (or even online payment) asks the payment to be made to a different person (in many times wife of the actual person who needs to be paid).
Agree, since a self cheque is the same as cash.

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I think this has mostly to do with the payment charges


My local medical shop - one which never accepts card payments suddenly busted out a card machine during demonetization. but it has silently disappeared and he is again asking for cash. But don't think he is evading tax - for my parents medicine (which comes to around 4K per month) they were willing to accept cheque. This is despite them having a card machine.
@Greenhorn; It does not have much to do with payment charges, which are 1% on Debit Cards, much less than what it costs them to handle the cash, insurance etc. It is simply tax evasion. The fellow does not want his turnover exceeding that of a year or two ago by 10x since he risks being (rightly) caught out.

Last edited by sgiitk : 12th January 2017 at 15:42.
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Old 12th January 2017, 15:56   #2020
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Cheque with the "Pay To" details bearing their true shop name or owner's name etc.?
Most (small) shops are run as sole proprietorships, so this distinction doesn't matter. The owner files a combined return, mentioning their income from the shop and outside of it.
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Old 12th January 2017, 17:02   #2021
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

Many small/tiny retailers are unable to move to cashless because their low prices were possible only because they never collected sales tax nor paid income taxes. If they charge tax, they will lose some customers, and also lose profit due to income taxes. So they feel cheated from both ends. Some may have to shutdown because their business was viable only in the absence of taxes.
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Old 12th January 2017, 17:48   #2022
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Many small/tiny retailers are unable to move to cashless because their low prices were possible only because they never collected sales tax nor paid income taxes. If they charge tax, they will lose some customers, and also lose profit due to income taxes. So they feel cheated from both ends. Some may have to shutdown because their business was viable only in the absence of taxes.
Why should they feel cheated? They were not running a legit business after all. The guys who feel cheated should be the vendors who pay both sales tax and income tax. Wondered why a samosa cost 15 rs in one shop and 60 rs in another?
Also paying taxes are not going to make the business unviable. Obviously profits may reduce. But there are tax slabs which make sure that a small or tiny vendor won't pay exorbitant tax. A tax of 10% on an income of 5L is not going to hurt any vendor.
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Old 12th January 2017, 17:59   #2023
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Why should they feel cheated? They were not running a legit business after all.
They feel cheated in the same way a corrupt official feels cheated while working without bribe.

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But there are tax slabs which make sure that a small or tiny vendor won't pay exorbitant tax. A tax of 10% on an income of 5L is not going to hurt any vendor.
These are people whose margins are less than the tax component. If they charge tax, their customers will move to a better store. Lot of small stores depend on not collecting/paying tax. This is very common in small towns and villages.

Last edited by Samurai : 12th January 2017 at 18:00.
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Old 12th January 2017, 19:32   #2024
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These are people whose margins are less than the tax component. If they charge tax, their customers will move to a better store. Lot of small stores depend on not collecting/paying tax. This is very common in small towns and villages.
Then fundamentally these stores were not operating their business in the right way. A person who supports these folks, then would have no right to cry about a "poor" traffic police constable taking a bribe, and not issuing a "challan" for any traffic violation.

The British have left our country ages back. Paying tax is no more supporting the "imperial forces". The business model was then based on illegal activities, it would be better to move over to a more legal way. The bigger shop keeper also would have to do the same thing.

When I hear such stories I feel that I was a fool to pay Income tax for the last 12-15 years. I should have some how got myself as a "poor & destitute" and avoid paying taxes. But then don't curse me when I ask for first class facilities (be it roads, high speed trains etc.).
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Old 12th January 2017, 19:36   #2025
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Default Re: Government scraps Rs 500 and Rs 1000 notes!

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Why should they feel cheated? They were not running a legit business after all.
If a business model/channel becomes unviable (in favour of another one) because of transaction costs imposed on it by govt - Is it really fair to that business?

originally these taxes were set high because of the low compliance, and the govt needed money. Now that the net is wider, shouldnt it be reduced to increase compliance?
Legally the answer is obvious - running the business model without paying the additional costs is illegal - I'm asking from an ethical angle.
Imposition of these costs on petrol pumps would have tilted the balance in favour of the shells and reliances of the world
The same is now tilting the balance from local shops to the big bazaars and organized retailers of the world
Petrol pump owners have leverage to negotiate against it. local shops do not.

Last edited by greenhorn : 12th January 2017 at 19:40.
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