Having the Cake and Eating Too ?

That about sums up the desire of the NDA government

It wants to rid the economy of the Cancer of Corruption , but also wants to retain those high denomination notes for the convenience of common citizen ( ! )

There is only ONE WAY both of these objectives can be achieved simultaneously

By totally abolishing Personal Income Tax !

By simply removing the " Incentive / Motivation " for tax evasion

Why would anyone want to hide his income, if there was no tax ?  Let the World know !

If that lack of privacy makes some people uncomfortable, they can keep their wealth a secret and we must respect their desire ( knowing that , Artificial Intelligence won't ! )

Remember , in itself , a note of Rs 1000 is not BLACK . If the owner of that note has paid tax on that income , it is WHITE

So , the issue is not to withdraw notes . Issue is to find out whether the owner has paid tax on those notes, or not

If a citizen has 100 notes of Rs 1000 ( Rs 1 lakh ), either in his cabinet at home or in his locker in the bank , IT / ED would not want to waste their time , trying to locate it / count it / tally this amount with that owner's tax returns , to conclude whether that amount of Rs 1 lakh was " disproportionate to his known source of income " or not

IT / ED can safely conclude that this is WHITE money

Now, if a citizen has 10,000 notes of Rs 1000 each ( Rs 1 Crore ) , but his tax returns show a taxable income of only Rs 5 lakh , that would be sufficient indication that

*   the amount " un-earthed ", is " disproportionate to his known source of income "

*   must have been received from " Unknown Sources of Income ",

*   no tax has been paid on it

*   it qualifies to be called  " BLACK MONEY "

To reach the same conclusions, extrapolate this logic to locating Rs 20 crores worth CASH, in the cabinet / locker of a person , whose latest tax return shows a taxable income of only Rs 1 crore

HENCE , THE  TRICK IS :

*  Locate those huge hoards of CASH , concentrated in a small area ( say , 1 sq meter )

*  Find out to whom those accumulations belong ( the owners )

*  Compare / tally these amounts with the tax returns filed by those owners

*  Carry out these 3 steps AUTOMATICALLY ( without human intervention ) with the help of

    latest technology ( IndiaStack platform + RFID sensors embedded in notes )

*  Seize those amounts where the ratio ( CASH found , divided by last taxable income

   claimed ) exceeds 20 ( or whatever IT / ED prefers , after making ABC analysis )

WHAT  IS  THE  NEED  FOR  SUCH  TRICK  ?

NDA government has following objectives :

#  Destroy already accumulated BLACK MONEY

    Far from being foolproof , current act of withdrawing Rs 500 / 1000 notes , will take care

    of this to SOME extent , although it will mean a lot of inconvenience to honest people /

    huge administrative costs / possible temporary drop in GDP % etc

    Of course , owners of huge amounts of BLACK ( untaxed ) CASH , are already finding

    innovative methods to convert their OLD notes into NEW notes !

    At best , this objective will get served ONLY PARTIALLY - and temporarily

#  Stop future generation of BLACK MONEY

    As far as this objective is concerned , not only is the current step , TOTALY INEFFECTIVE

   , it is downright RETROGRADE through introduction of NEW notes of Rs 2,000 !

    Within 6 months , it will be BUSINESS  AS  USUAL , for the Black Marketers - and with

    greater ease / convenience , using lesser number of notes to stash up  ever larger

    amount of CASH , in even smaller bank lockers !

Sure , BOTH of these objectives could be met SIMPLY / ELEGANTLY / SIMULTANEOUSLY , by abolishing Personal Income Tax

But that would never happen as long as matters of ECONOMY are left to the mercy of the learned Economists !

BUT ,

If you want to have the Cake ( continue with high denomination notes ),

AND

Eat it too ( ALSO stop future generation of BLACK MONEY ) ,

THEN,

Your ONLY solution is to embed those high denomination notes with RFID chips !

Even if NDA succeeds in fooling the Bankers and sundry, learned Economists, it won't be able to fool the ordinary citizens !

It is still not too late to ditch the Economic Advisors and listen to the ordinary citizens !

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18  Nov  2016

www.hemenparekh.in / blogs