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Originally Posted by TarunSC 1. This will (in principle) help the country to do away with the backlog of fake currency and the problem of black money as all big deposits only over a certain period of time have to be taken into account. But how will it stop the cycle of black money which will restart after a lag period maybe.
6. I have no doubts about the intention of this step but am highly skeptical of the long term viability of the move and the fact that is this an actual answer to the menace of corruption and black money or just a temporary solution. |
I think this move helps in three ways:
1. It of course, completely wipes out the black money held in currency form and severely cuts the value of real estate holdings. Already RE stocks have tumbled; see:
http://www.ibtimes.co.in/dlf-hdil-in...k-money-703172 and people are burning currency it seems.
2. The law, policy and technology for much more advanced transactional tracking is already in place; it is going to be quite difficult to create new wealth that the taxperson does not know about.
3. The government can consider a system where such a currency withdrawal happens every few years; making cash hoarding impractical.
So then people are left with two options: hold movable assets, or send the black wealth abroad. For pretty much any movable asset acquisition nowadays we have to quote PAN or pay electronically. Further, apart from gold I don't think any of the remaining options (works of art, fine watches, automobiles...) are easily liquidatable. There are already controls on gold transactions with more to come in the next budget, I expect (Jaitley had to roll back some stuff last time).
I'll be honest in that it is not clear to me what our government is going to do about black wealth stashed abroad. So far, whatever information they seem to have is from external sources like Wikileaks and ICIJ. Is our strategy to flow with the international tide against Swiss and Carribean banking? I don't know.
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Originally Posted by TarunSC 2. We do not have sufficient currency notes printed and there will be a considerable lag period before things get back to normal.
3. A majority of people in small towns and villages do not have any bank accounts, let alone credit and debit cards and the several other online means of payment and it will be really difficult for them to survive this period of liquidity crisis. |
These I think are misinformation. One article I read said RBI had ramped up Rs. 100 note production in recent weeks. A casual look at official JDJ website says 25 crore accounts have been opened under the scheme so far. Since the scheme target was one account per household, that I think we can take that to mean nearly 100 crore individuals are covered, which definitely puts paid to the "majority don't have bank accounts" view. NPCIL claims that nearly 25 crore Rupay cards have been issued; so we can say that about 100 crore people are covered there too.
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Originally Posted by TarunSC 5. Though I am a salaried tax payer and against black money from any source I feel that the impact on local retail shops and real state sector is going be negative(with varying degree) in the short run atleast. |
And these are the biggest tax evaders too. I have heard builders in NCR ask for 40%+ in black money? A retailer who's open 300 days a year needs to earn only Rs. 850 a day to be in the taxable income bracket - if we assume 5% margin, then daily turnover of only Rs. 17,000. I expect several local retail shops do fall in this category but none of them pay a single rupee in tax. Also remember that only about 1-2% of Indians pay taxes (if we exclude the ones who have to pay because of the TDS regime, I guess pretty much nobody pays taxes on their own).
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Originally Posted by benbsb29 I had the exact same feeling when i saw the gung-ho brigade praise this decision. I refer to it as a case of changing goal posts mid-play and then expecting the other party to compensate. I'm expected to lose money in exchange and associated costs in time spent, because my legally earned currency one fine day becomes illegal to tender. |
GoI ought to be held accountable only for the currency you hold within its jurisdiction. Outside of it, all one should expect of GoI is to have the necessary policy and legal framework that enables currency exchange from INR to whatever the local currency is. Such a framework exists, and there are any number of businesses that operate within this framework to provide currency exchange services. Now it should be up to you to take advantage of such services.
Alternately, you could simply mail the currency you have to someone in India who you trust to do the honours.