Government scraps Rs 500 and Rs 1000 notes!

[Raccoon]

Originally Posted by SilentEngine

How exactly is black money beneficial to anyone? We are not getting much in return for our taxes exactly for the reason that lot of people didn't pay their taxes - which is how black money got created in the first place.

Without intending any disrespect, I have to say that is a very skewed perception. We are not getting much return because of a government which is highly inefficient and corrupt (I'm not alluding to any particular party/government). Just one eg.: there are a number of PSU companies that are doing very badly. They are doing badly, whereas their private counterparts are very likely doing well. If a private company does not do well, it closes down. If a PSU does badly, all of us taxpayers are subsidizing them with our hard earned money. Then keep making losses and we keep paying for them. In other words, they are our dependents.

Now lets imagine the ideal situation where everyone pays all taxes all the time. The government will of course collect a much bigger loot. But are you sure they will utilize all our hard earned money as it should be? That has never happened. In fact the wastage, corruption and profligate spending by the government is enormous. In short we are not in a perfect world. Neither the tax payer is perfect nor the government nor everything else. But you want just the taxpayer to be the embodiment of honesty and perfection? Thats what the government would love, of course, but it certainly does not mean the taxpayer will necessarily benefit. So should we do nothing about anything? I'm obviously not saying that. What should be done is to have a minimum government, minimum laws, minimum taxes. A government that does not have any business in business. These and other maxims are known to Modi too. But they are not implemented, for reasons best known to him.

[SDP]

Originally Posted by Raccoon

...
Lastly, why is blackmoney being seen as... well, so black? Is black money necessarily harmful for the economy? For society? Not really. Its only harmful for the government in that it reduces its looting capability. ....

Buddy, you need to read up! A lot!
Here's a short answer - black money is harmful as its responsible for corruption & influence, election 'funding', inflation, terror-funding, reduced govt revenue, lower economic growth etc etc etc

Originally Posted by SaNdY_AR

Another angle....

May be the banks goofed up?

http://www.ndtv.com/india-news/stock...-lateststories

Let's understand a few things:
1. Out of every 1 lakh Rs in circulation, 86,000 Rs are in 500 and 1000 Rs denomination. So even if the banks scrape and collect EVERY 100Rs and lower note, would they be able to exchange all 500&1000Rs notes? Nope!

2. RBI had given a directive to dispense 'more' 100Rs notes. The part from the article which talks about 'ATMs with 100Rs notes only' seems to be untrue. ATMs have cassettes/treys inside which hold specific type of notes. So one can not just load a regular ATM with 100Rs notes in all cassettes. You can play with the proportion of different types of notes, so that 'more' 100Rs notes get dispensed per transaction.

So I don't believe the banks goofed up.

[SilentEngine]

Originally Posted by Sawyer

Are you sure this is a valid line of reasoning or are you mixing cause and effect? We are not getting a return for whatever taxes we pay because there is too much leakage of what we do in fact pay. Address those leakages, and it is the equivalent of a lot more people paying their fair share of taxes by having what is paid used for useful activity and not wasted as explained in response to the earlier quote. Address that, and one reason why people are unwilling to pay their fair share is eliminated, so that less money is then left as black money. And address the whole subject of bribery, and the need for black money reduces even further.

I think cause and effect in this case is not so linear.
There are two aspects here - black money generated within government machinery (in downstream of return on tax) and black money generated in larger society (which affects the upstream of taxes paid).
Fixing the leakage addresses only one part, and the premise that this will make people who haven't been paying their taxes to pay - good thought, and probably true to some extent. But what about inherent greed?

[StarrySky]

Originally Posted by binand

You haven't seen half of it. Take a look at this rant:

http://www.firstpost.com/india/demon...i-3103126.html

Amazing!! Thanks for this! I had to recheck the URL to confirm that I am reading this from Firstpost and not Fakingnews.

[SilentEngine]

Originally Posted by Raccoon

Without intending any disrespect,

None inferred!

I have to say that is a very skewed perception. We are not getting much return because of a government which is highly inefficient and corrupt (I'm not alluding to any particular party/government). Just one eg.: there are a number of PSU companies that are doing very badly. They are doing badly, whereas their private counterparts are very likely doing well. If a private company does not do well, it closes down. If a PSU does badly, all of us taxpayers are subsidizing them with our hard earned money. Then keep making losses and we keep paying for them. In other words, they are our dependents.

That's a different topic altogether, whether government should be in business of running other businesses. Even with zero black money, PSUs may still be making losses (because of various reasons not linked to black money), so this whole demonetization does not address that at all.

Now lets imagine the ideal situation where everyone pays all taxes all the time. The government will of course collect a much bigger loot. But are you sure they will utilize all our hard earned money as it should be? That has never happened. In fact the wastage, corruption and profligate spending by the government is enormous. In short we are not in a perfect world. Neither the tax payer is perfect nor the government nor everything else. But you want just the taxpayer to be the embodiment of honesty and perfection? Thats what the government would love, of course, but it certainly does not mean the taxpayer will necessarily benefit. So should we do nothing about anything? I'm obviously not saying that. What should be done is to have a minimum government, minimum laws, minimum taxes. A government that does not have any business in business. These and other maxims are known to Modi too. But they are not implemented, for reasons best known to him.

I am not saying this is the best solution, in fact in some of my earlier comments, i have said i am not even sure if this exercise is worth the cost and if we get the intended results, although in principal i support this. Highlighted parts above - are result of lack of real accountability on governments' actions. People don't really have much say other than getting to vote every few years. Real solution perhaps is to make the society change from within by way of education, awareness etc which are all slow processes.

[condor]

The amount of tax that will be collected is huge .. Development and Defence can be boosted like no other time in the country's history !


On another note, payments between entities (incl people) can still be made via non-cash means. Just because cash is sitting in the banks, does not mean that business has to stop. For all the smaller payments, we have the little cash in hand

[poloman]

Originally Posted by SDP

Buddy, you need to read up! A lot!
Here's a short answer - black money is harmful as its responsible for corruption & influence, election 'funding', inflation, terror-funding, reduced govt revenue, lower economic growth etc etc etc


.

Totally agree. Also this widens the rich poor divide. Money is funneled form poor and salaried to corrupt and tax evaders in a black economy. Due to this move, even if it is illegal lot of poor people will get some commission in to their accounts.
You just need to look around. You had liked a plot of land very much. You were running from pillar to post to get a loan approved for the same. Mean while a moneybag walks in make an all cash deal and you are left counting your losses.

If we want to aspire to become a developed economy, we have to increase the taxed population from current 3% to atleast 30%. This needs rationalization or reduction of tax rates and slabs. I am sure when election approaches Modi, with improved finances will do a min 5% tax cut. This will be the real tangible gain for tax paying salaried class like us from this whole exercise.

[kartavya]

Just amused at how some think that black money is totally fine and doesn't affect the economy. Ofcourse it does, rules apply for a reason, why can't we follow them? The reason black money is not right is because its your duty as a citizen to pay taxes to this country. If you are not happy with the taxes, you are better off shifting or voting for a government with really low taxes. Imagine me buying land for 1 cr with white money at 30-40% tax and someone else buying with black. I lose 30-40 lacs in comparision to the other person. The other person has the ability to spend a lot more hence increasing demand hence increasing prices (luxury cars being prime example).

What some people don't understand is that due to taking out all the illegal 500/1000, the banks will get richer no doubts, but also understand that the loan rates will be cut as well. Infact I am pretty sure in the next 6 months we will be hearing more about this. Basically this is helping everyone except some who have hoarded cash.

Also business is going on as usual, surely you can conduct business via RTGS, cheques (which is done mostly) without any issue whatsoever. There has been no effect on any bank accounts at all.

Why do we need to think of this as a win for the credit card companies? We can still pay in cash, but just pay taxes on it and you will be fine. There is no need to pay with your card except maybe this 2-3 weeks till we get more currency.

The PSU's arn't doing well? That is years of poor governance, don't vote for whoever you hold responsible. Just because you are unhappy with that doesn't mean the government have to stop acting on illegal money.

[diyguy]

I feel that instead of the 200% fine the government should have imposed a 50-75% fine. This would have made it little more than the amnesty am sure many people would have gone for it. At least the government may have netted more than what they will finally end up with.
I am seeing rampant purchases of high value items often priced at a premium of 20% more than online rates. People are going ahead with the purchases as they are getting an asset anyway. There is another parallel economy opening up for people who know how to navigate the system.
This is my opinion from what I am seeing and it saddens me that there are so many avenues for tax evaders to get away with it albeit at a little compromise...

[kartavya]

Originally Posted by diyguy

I feel that instead of the 200% fine the government should have imposed a 50-75% fine. This would have made it little more than the amnesty am sure many people would have gone for it. At least the government may have netted more than what they will finally end up with.
I am seeing rampant purchases of high value items often priced at a premium of 20% more than online rates. People are going ahead with the purchases as they are getting an asset anyway. There is another parallel economy opening up for people who know how to navigate the system.
This is my opinion from what I am seeing and it saddens me that there are so many avenues for tax evaders to get away with it albeit at a little compromise...

The 200% is one the original tax amount which would actually amount to I think around 90%. The government gave everyone a chance with 45% but most of the people din't go for it. Also considering a lot of people are exchanging black at a 40% premium, not many would have deposited either way unless left with no option.That said it has managed to erode the value of their black money by atleast 40% not considering the huge amounts of phones they are buying just to use the black money.

[rahul_jo]

I might not make any friends here by saying this, but true corruption exists inside our heads. Honestly, black money is a result of our mindset. Everyone is under the assumption that if you change the system, you will eventually change the mindset. When in reality, if the mindset changes, you won't need to have any systems in place.

Let me prove it with a little off topic example - How many Indians will bother to stop at a red light if there is no cop watching over their shoulder? Very few. Most people on this forum are pretty responsible law abiding drivers. However, we all know the reality when it comes to majority of the population. Same thing applies to the generation of black money. It exists because of us.

Let me give you some examples again...

1- In our markets there is a popular term known as "with bill", "without bill". We all know that if we take an item with the bill, the price will be somewhat higher as the govt takes its cut. Therefore, majority (not all) customers don't mind taking the cheaper option (which is then justified by being called a better deal). If you have ever bought something without a bill, then congratulations, you did your fair share in contributing to black money.

2- I don't know of any business in India (from the smallest to the biggest) that isn't doing some sort of tax planning (evasion). This includes your local "street chat waala" to some billion dollar enterprises. But here is something really interesting. If a street vendor is selling "Chole Bhature" on a cart and is grossing 5000 rupees a day (many do a lot more than that), that is 18.25 lacs in gross sales a year.

Let's assume that on a very conservative level, his profit is 30% (usually it's a lot higher). Technically he should be declaring net profit at 5 lacs plus and filing accordingly. But in the real world scenario, how much is he declaring? We all know the answer is zero. Since all of his transactions will be in cash, he doesn't feel the need to declare anything and no one will ever come to know how much he sold.

And the funny thing is, you'll see this same guy standing at an anti-corruption rally, shouting about how government should do something about the black money issue.

3- Now comes the most interesting question of them all. How many of us are actually honest with ourselves? Are we really declaring everything we're supposed to? Why is everyone looking for friends, family members or trying to figure out ways to find those extra accounts because they have a little more than 2.5 lacs in cash sitting around?

I've seen people praise this move till death and at the same time they are the same folks who are trying to find extra accounts within the family to put some money in.

4- My driver said something rather interesting today - He said, sir "Ab aache din aane waale hain" (better days are about to arrive). When I asked, how do you know? He said, since Modi Ji has caught all those money hoarders, now he will put 2.5 lacs each in our Jan Dhan Yojana accounts and as a result, we'll all live happily ever after.

Technically speaking, his intent behind supporting this move is pure greed. Since he assumes that if the government does this, he'll get free money, he is ecstatic about it. This once again, proves how corrupt our thinking is. He is expecting "FREE MONEY" to arrive into his bank account which wasn't earned by him.

5- How would banning one currency and releasing the next completely eradicate black money? Sure you might see a little slump for the time being. However, over the long term, you'll see black money being generated all over again. Because at the end of the day, a transaction happens between a buyer and a seller.

As long there is cash involved and both the buyer and the seller agree to not pay tax on that specific transaction, the government can make all the laws they want but it won't help. The corruption has to be eradicated from the mindset first. Then everything else will be seamless.

[diyguy]

Originally Posted by kartavya

The 200% is one the original tax amount which would actually amount to I think around 90%.

The actual tax plus 200% penalty would amount to approximately 85-90% tax or thereabouts on the deposited amount. If the government targets 50-55% I think, given the circumstance, many would opt for it.
An example people are purchasing 3L UHD tvs, priced higher than normal, just to avoid paying anything to the government or reduce their amount they would eventually deposit. The unscrupulous dealer who is taking cash is now making more money that he normally would have and hence the government is the poorer for it.

[Sawyer]

Originally Posted by SilentEngine

Fixing the leakage addresses only one part, and the premise that this will make people who haven't been paying their taxes to pay - good thought, and probably true to some extent. But what about inherent greed?

First of all, greed is good. It is the fuel of capitalism. if it were not for greed, we would still be living in caves. What is bad is unchecked greed that allows for breaking the law.

And I have written that this is a subject that needs a solution that is holistic, of many parts. Of course the part of making sure that leakage of tax revenues is addressed so that one genuine disincentive to pay the taxes is only one of these many parts, but it is an important part of creating an environment that promotes a voluntary payment of taxes due.

There are two broad approaches to this:
1. Incentives and removal of disincentives to pay taxes. The latter also includes removal of the nuisance there is today in paying taxes, that anyone that runs a business is very aware of, where indirect taxes like VAT and the like are concerned; income tax is now fairly streamlined and easy to determine and to pay for an honest business, but the indirect taxes are very high in nuisance value in how they are administered. And in these incentives, I do not include the voluntary disclosure schemes, these are double edged swords.
2. Dandas and deterrents. No doubt these should be there, but the experience in India has been that these end up as breeding grounds of parasitic bureaucracy, court cases, corruption and more black money. What we need is less deterrents, but more effective enforcement.

Overall, we need more of 1 and less of 2; so that what little there is of 2 can be honestly and strictly enforced.

[binand]

Originally Posted by Raccoon

Just one eg.: there are a number of PSU companies that are doing very badly. They are doing badly, whereas their private counterparts are very likely doing well. If a private company does not do well, it closes down. If a PSU does badly, all of us taxpayers are subsidizing them with our hard earned money. Then keep making losses and we keep paying for them. In other words, they are our dependents.

I looked up some information on this. As of date, there are approximately 300 central PSUs. The list is here: https://en.wikipedia.org/wiki/List_o...kings_in_India

Many of these are in the energy/power/infrastructure sectors, where the route to profitability is long and arduous. These are the sectors in which we expect government intervention. Despite this, in this year's budget, Jaitley reported dividend revenue of Rs. 31,700 crores - at an average of Rs. 100 crore per PSU.

To take an example, DMRC reported a loss of Rs. 2750 crore in 2014-15. By your definition, this is a PSU that is making a loss and ought to be shut down.

It is not as if all PSUs are 100% government owned. Many of these have been part of the divestment plans of various governments.

Edit: I agree there are some white elephants like Air India. But these are the exceptions and not the norm, in my opinion.

[sgiitk]

I hear about 3.25L crores has already been deposited, and the figure may cross 6 lakh crores by 30/12. Assuming that even 60% of this is unaccounted, we are looking at 3.6 lakh crores into the economy.

Let is take an average 20% tax, so this amounts to over 72,000 crores in taxes. Imagine what will happen.

GDP goes up (growth over 10%), and there is talk about lowering of taxes. I hope they do so on GST rather than Income Tax. Why, the former is regressive, and the latter progressive. A banker tells me that debt fund yields went up over 1% last week.

Who says India is poor!