Team-BHP - Government scraps Rs 500 and Rs 1000 notes!

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Originally Posted by rahul_jo (Post 4092708)

...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.
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... The corruption has to be eradicated from the mindset first. Then everything else will be seamless.

The first part "true corruption exists inside our heads" is absolutely true. I would go even further and claim that (most) Indians are possibly among the most corrupt and with weakest moral compass. They would do anything and everything as long as it is in their best interest...morality and interests of others be damned.

The second part where you talk about "The corruption has to be eradicated from the mindset first" and "changing the mindset", can you please elaborate how this should be done?

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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.
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A very good example to prove a counter point. Same scenario ... red light at a junction. Take the system (traffic police and fines) off and try to change the mindset of people by way of bombarding "Issued in public interest" ads and other campaigns. Do that for a year and then see if people still bother to stop at the red light if the traffic police is not there. I don't think I have to spell out the end result. We Indians are 'over-smart' and there is scant disregard for law. 'Jugaad' and 'connections' is the way of life. The only thing that works in India is the 'stick' (from carrot and stick). The stick is nothing but a well-implemented and seriously followed system. Take the same example again...red light at a junction. Implement a stricter system with lesser loopholes (e.g. camera and eChallan directly reaching home). Be strict and challan everybody for a few weeks. Go and recover higher fines. Impound a few vehicles and suspend a few licenses. Throw a few drunk drivers in jail. And then see if people stop at the red light at a junction.

Another aspect of mindset v/s systems. Have you noticed the same people who roll down the glass and toss out water bottles from the car in India won't even throw a bus-ticket on a road in Singapore? Does the 'mindset' change during the flight to Singapore? Nope... only systems and how strictly they are implemented changes. For people with weak morals, system and stick are the only things that work.

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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.

This has been discussed multiple times in this thread. If not completely, just read up last 4-5 pages and you will get an answer.

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Originally Posted by rahul_jo (Post 4092708)

The corruption has to be eradicated from the mindset first. Then everything else will be seamless.

It's easy to say, change the mindset. But how exactly does one do that?

The facts are simple. I know that this move (demonetization) is not the only solution. I also know that this will eradicate black money but not really curb corruption. But this is a move in the right direction. You have given a strong message that corruption and money hoarding will not be tolerated. That message is a fantastic start.

The problem is that we have learnt to accept and live in an environment which loves maintaining status quo. The general term used is "Arre, yahan kuch nahi ho sakta". (Nothing can change here). But here is a major change unfolding in front of our eyes. And instead of accepting this as a start of the change, there are bunch of people who are trying to convince everyone on why status quo was better. (No offence to anyone here)

To me the change starts at home:

Insist on paying your workers (maids, drivers, cooks etc) only through cheque and bank transfer
Spend some time and teach them how to use debit cards
Ask them to avail of the government benefits like direct to bank transfers, aadhaar linkage, low cost life and accident insurances etc
Talk to your local kirana wala (local shop) and tell him the benefits of accepting mobile wallets and cards
Look for shops in your locality who accept cashless transactions and give them your business; let other shops know why your business went to them

Bring more and more people into the banking world. Once transactions start moving cashless, they will automatically come into the tax umbrella. It's our job to ensure that we are able to bring more transactions online & cashless. Look at the change in the cities today. When was the last that many of us purchased a railway ticket at the counter. Or a cinema ticket at the counter? How many of us are moving to online groceries. These are all indications of getting the money rolling into the white economy.

I think its time to be part of the revolution than to watch the revolution from the fence.

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Originally Posted by diyguy

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.

As some one earlier mentioned people were given an option to declare their illegal income with a tax+fine being 40% of the amount being declared. 60% of the money would still remain with them. But no one is interested. Now when things got more worse, the same people start begging for more options.

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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.

That shop keeper would land in trouble, when he has to show how he got so much Rs.500 & Rs.1000 notes. He can say that he sold TVs, but there again he would have to show his stock register, and the invoices etc. So if he has over priced the invoice his tax dues would be on the over priced invoices.

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Originally Posted by sachinpk (Post 4092868)

But no one is interested. Now when things got more worse, the same people start begging for more options.

You are missing the point completely. Instead of the government making money, this has enabled unscrupulous guys into earning off the tax evaders. Such people will obviously go for the option that is least impact to them unless the difference in insignificant.

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Originally Posted by sachinpk (Post 4092868)

That shop keeper would land in trouble, when he has to show how he got so much Rs.500 & Rs.1000 notes.

The shopkeeper has made sales of about 7L already to a single person with about 25% premium on some products. How he handles his reporting is of no concern, the point I was making is there are plenty of avenues to recover from this situation.
I also read of the many cell phone purchases being made for resale later.
All this could have been avoided if there were a forced amnesty scheme at about 55-60% penalty imho...

A well written article by Jayati Ghosh, in the Hindu. Some interesting tidbits,

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Government spokespersons argue that secrecy and speed were of the essence to achieve its goals. Otherwise, they state, those hoarding black money would simply be able to convert their cash into “white” through buying other assets in the intervening period. But this argument is completely specious. Suppose the government had announced that (say) from December 1, 2016, the old notes would no longer be valid. It could then start tracking all large sales of likely assets (such as land, houses, gold) and foreign exchange transactions, to follow up with those who had made them. This would have involved no cost to the ordinary law-abiding citizen but still provided the government with all the information it needs to ensure legal and tax compliance from such individuals.

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What exactly is “black money”? The first mistake is to see it as a stock of cash or pile of accumulated assets, because it is not about stocks at all so much as flows or transactions that are concealed from authorities or under-reported, so as to avoid taxes and various other regulations. Bribery and other instances of corruption are one form of such transactions, but there are many other forms, such as under-invoicing and over-invoicing by companies of all sizes, under-reporting of the values of sales of goods and services by individual providers, overstating of costs, reporting false or non-existent transactions and of course criminal activities of various kinds. Many of these do not necessarily require cash transfers at all but can be just as easily (and more speedily) done through electronic means, and relate to different sorts of account-keeping. Also, money does not acquire a particular colour and keep it; as it flows through different transactions, it can move through white, black and grey hues

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... a significant proportion of our GDP – around half, according to current CSO estimates – is produced in the informal sector, and around 85 per cent of the population relies on it. This is unrecorded income, even though it is estimated in the GDP, but it is dominantly not “black” because incomes here are generally too small to fall into the direct tax net and are anyway subject to indirect taxes of various kinds. Indeed, the incomes of farmers (which are not taxed), the returns of small traders and micro entrepreneurs, the incomes of daily wage workers, the incomes of small service providers: all these and many more such incomes are clearly the result of what would be considered as “white” transactions even though they are not registered and reported to any fiscal authorities.

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The fact is that the both the insensitive design and the shoddy implementation have already cause a huge amount of distress to different people in various ways, and the pain is likely to linger for some time. The rapid and sudden strike without warning meant that ordinary people had no opportunity to prepare for it. The immediate impact – in the form of drastic cash shortages leading to immense hardship especially among less privileged groups; long and tedious waiting times in queues that often prove to be fruitless because banks and ATM machines are unable to provide the required cash – all these have been widely portrayed in the media.

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...The biggest negative effect is the loss of liquidity for the informal economy, which has already been of massive proportions. This has led to breakdowns in payments systems and has drastically affected trading. As the chaos continues, the knock-on effects on economic activity have grown. People hoard their slender cash holdings and do not shop; this affects large and small retailers who rely on cash sales; this affects their own demand for purchase of goods in the wholesale markets; and so on. Even in megacities like Delhi, there are reports of shopkeepers simply shutting their shops because of the lack of buyers as a result of the cash squeeze, while traders in mandis have been caught with huge amounts of unsellable stock of perishable items like fruits and vegetables because of lack of cash purchasers. This has permeated down the distribution chain to the small vendors and street hawkers. This has also affected production systems, as moneylenders providing working capital to small producers are unable to provide the new notes.

The decline in trade – even if temporary – has a knock-on effect on production, and thereby generates further negative multiplier effects in the local economy. There are already reports of daily wage labourers unable to find work because employers cannot pay them with the new money and are only able to offer old notes, which are now without value.

Cheers !

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Originally Posted by ptushar (Post 4092866)

When was the last that many of us purchased a railway ticket at the counter. Or a cinema ticket at the counter? How many of us are moving to online groceries. These are all indications of getting the money rolling into the white economy.

I think its time to be part of the revolution than to watch the revolution from the fence.

I agree 100% with the latter part. However I have to say that doing the things quoted above are not revolutionary for me at least, I do it because it is easy and convenient to do these things. In fact, going back to using cash will be revolutionary now in case of many things, where I am concerned.

The really revolutionary things to do would be the things that are necessary for things to change, but very hard for me to do. Like - not paying again any bribe to anyone, ever again, regardless of the consequences. Another example - observing every traffic rule and road manners even when there is no police presence to enforce these. Or to be willing to buy things, all the way to flats, for a higher price because there is tax that has to then be paid on a higher value than before, leaving a bigger hole in my pocket than now.
I could add to the list, but the point doesn't need to be made further, I think. Asking others to participate in the revolution of doing things that are now convenient for me to do doesn't cut it, I'm afraid. People will do all of those things with little help from me.

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Originally Posted by sgiitk (Post 4092763)

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!

What has happened so far is Govt has mopped the currency in circulation and the savings of the people which was held in cash. I believe that 100% of this white and IT cannot claim a single penny as the penalty. Best Govt can get is the tax on the interest paid by the bank on the deposit amount.

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Originally Posted by ptushar (Post 4092866)

To me the change starts at home:

Insist on paying your workers (maids, drivers, cooks etc) only through cheque and bank transfer

Whenever I visit a bank, I encounter educated folks who struggle to find right forms for withdrawal, pay-in, drafts, cheque deposits and then struggle to fill those forms in. What I am alluding is interacting with banks require a certain understanding of working of bank & banking terminology. Most of these are in English and the vernacular translation is even more alien than English. Customers are made to feel like idiots. Banks are not simplifying themselves. That is the reason why many avoid dealing with banks.
PS: PM's Jan Dhan Yojana is more than 2 years old and hardly any bank is interested in promoting this scheme, due to high maintenance and low value.

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Originally Posted by Sawyer (Post 4092739)

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.

Indirect taxes from a business point of view - i don't have first hand experience on that, so can't comment on that, but good points though.

Current solution is clearly a strong step, seems to have been taken with a leap of faith, with the hope that it will have a positive spill over effect despite the short term pain.

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Originally Posted by Ironhide (Post 4092880)

A well written article by Jayati Ghosh, in the Hindu. Some interesting tidbits,

Government spokespersons argue that secrecy and speed were of the essence to achieve its goals. Otherwise, they state, those hoarding black money would simply be able to convert their cash into “white” through buying other assets in the intervening period. But this argument is completely specious. Suppose the government had announced that (say) from December 1, 2016, the old notes would no longer be valid. It could then start tracking all large sales of likely assets (such as land, houses, gold) and foreign exchange transactions, to follow up with those who had made them. This would have involved no cost to the ordinary law-abiding citizen but still provided the government with all the information it needs to ensure legal and tax compliance from such individuals.

Few pages back we were discussing along similar lines.

Already government seems to be on the back foot, earlier only government hospitals were allowed, from today even private hospitals are expected to accept old notes. This should have been allowed in the beginning itself.

Has anyone got 2000s from the ATMs yet?