Currency Curbs Will Increase Tax Collections In Medium To Long Term: Jaitley

A day after banning the use of Rs 500 and Rs 1,000 currency notes, Finance Minister Arun Jaitley said the move will increase direct and indirect tax collections over the medium to long term as a lot of stashed black money will now come into the formal banking system.

“It will be a significant setback to the parallel black economy because a lot of currency stacked outside the system will now have to perforce get into the banking, and therefore become a part of formal economy…In the medium to long term tax collections, both direct and indirect, will increase”, Jaitley told reporters on Wednesday.

He also said that cancellation of the legal tender character of these high-denomination currency notes was long overdue and will help curb counterfeiting and black money, stressing that only those possessing black money will suffer as a result of the government’s decision.

The Crackdown Continues

In a series of tweets later in the day, Revenue Secretary Hasmukh Adhia added the government will get reports of all cash deposits above Rs 2.5 lakh crore that are surrendered to banks between November 10 and December 30. The income tax department will match this with income returns filed by depositors, and take suitable action, wherever necessary.

A Hurried Move?

The measure was not taken in haste, Minister of State for Finance and Corporate Affairs Arjun Ram Meghwal told reporters following Jaitley’s briefing. He maintained that it was a planned move that will help curb terrorism, black money, fake currency, and corruption.

‘Seamless Replacement’

Earlier in the day, Finance Secretary Ashok Lavasa said that the government’s idea behind introducing Rs 2,000 notes was of seamless replacement , and that the Reserve Bank of India will closely monitor its use.

New Notes, Old Corruption Fears

Jaitley in his briefing defended the government’s decision to introduce new Rs 500 notes and Rs 2,000 notes, saying it would ensure logistical convenience and ease of replacement. The government had earlier rejected Reserve Bank of India’s proposal to launch Rs 5,000 and Rs 10,000 notes, he added.

It will be very difficult and reap no benefit to first bring unaccounted money under the tax net and then again convert it into black money, the finance minister said.

The government has allowed the old currency notes to be used at metro rail counters, government hospitals and pharmacies, petrol pumps, toll plazas etc. till November 11. Jaitley said in his briefing that the move underscores the government’s effort to minimise the inconvenience caused to common citizens.

Minor inconvenience for a short time must be borne as the country will significantly benefit from the advantages of scrapping these notes in the longer term, he added.

For public convenience, banks will remain open for public on Saturday and Sunday, Economic Affairs Secretary Shaktikanta Das wrote in a tweet.

The government expects two to three weeks for adequate replacement of notes which is the reason certain limits have been set for withdrawals.

Cash withdrawals from bank accounts, over the bank counters, will be restricted to a limited amount of Rs. 10,000 per day subject to an overall limit of Rs. 20,000 a week from November 9- 24, 2016, Prime Minister Narendra Modi had said in his press briefing on Tuesday evening. These limits will be reviewed at a later date. Cash withdrawals from ATMs will be restricted to Rs. 2,000 per day per card up to November 18, 2016 and the limits shall be raised to Rs. 4000 per day per card from November 19, 2016.