IF HIGH denomination notes in 500/1000/2000 value are to be unavoidably reintroduced albeit in new design then their ratio should be restricted to only 5% of the total cash value as against the present ratio of 84%, as a result of which the regeneration of new black money will be restricted, argues a Hyderabad-based serving Indian Revenue Service (Income-Tax) officer Bandi Ramakrishna. Here below are the personal views of Ramakrishna, put together 10 days ago, on how to implement this gigantic exercise better:BY Bandi Ramakrishna
Needless to say demonetization exercise brings the entire unaccounted cash into banking system, which is beneficial to the economy as well as the citizens at large. This article is not about the assessment of the government decision or its impact on the economy, but about how to implement the decision with least inconvenience to the general public while at the same time to achieve the goal of peaceful migration from old high denomination notes to new currencies.
The Government announced cancellation of old Rs 500/1000 currency notes w.e.f. 9/11/2016 but apparently the matter has been left to be interpreted in many contrary ways as to whether cancellation of OHD notes automatically leads to cancellation of the transactions, if carried out, through the cancelled OHD notes. If two persons agree to transact through the cancelled notes, there is no provision to penalise the parties involved in that transaction. For instance, a person buys 10 kg of sugar through cancelled OHD (COHD) notes and the seller accepts these COHD notes, declares sales in accounts by duly depositing these COHD notes in his bank account, pays sales tax and income tax then are these sales deemed to be void? If sales are void, how can tax payment be accepted in COHD notes? Now coming to the buyer... whether the sugar purchased by him through COHD notes would be confiscated by the Government, because the transaction is void? Even if the goods acquired by the buyer through COHD notes could be confiscated by the Government, what would happen if the buyer had fully consumed the acquired goods (sugar, in this case)? Another pertinent question that arises is whether the government is fully prepared to confiscate all the goods acquired during the period from 9th November to 30th December through COHD notes from all the buyers? Whether the Government has sufficient information sources to track the transactions being done through COHD notes so as to confiscate the acquired goods? Whether there is any enabling legal provision to confiscate such acquired goods from the buyers?
If answer to all the above questions is NO, then why not legally allow the people to use the COHD notes upto a specified limit (say, Rs.5000 per bill/invoice per head) and on the other hand impose a legal ban on transactions in COHD notes exceeding this specified amount? Some are interpreting that there is tacit approval of the government for lower quantum sale-purchases, then why should the Government bear the criticism of causing inconvenience to the people standing in queue in banks? Government itself may announce that the transactions in OHD notes are valid upto Rs.5000. Whereas for imposing a legal ban, an ordinance amending Sale of Goods Act, Transfer of Property Act, Contract Act and other related Laws has to be immediately brought in by prohibiting the agreements/transactions done in OHD notes exceeding the value of Rs.5000 with immediate effect and upto 30/12/2016 or upto March, 2017 as the case may be.Consequent upon validation of the transactions upto Rs.5000 the queues at banks/ATMs will vanish because the need for daily requirements can be met through the available COHDs of the citizens. Whereas the legal ban on transactions exceeding Rs.5000 will prohibit the transfer of money from the unaccounted money holders who, left with no option, will have to approach the banks to deposit their unaccounted money in their own bank accounts. Unless the transactions (of course exceeding Rs.5000 per bill) are cancelled explicitly, the unaccounted money may not come to the owners’ bank accounts at all but may change hands in the form of property/goods purchases and finally landing in somebody else’s (seller’s) bank accounts who may even pay tax, as a surrogate to the actual owner of the money. But in the whole process who has escaped from depositing the OHD notes in bank account is the one who was holding unaccounted money as on the date of 8th November, 2016. So, legal ban will address this problem.
Implementing authorities of the legal ban should be Central Board of Excise and Customs (in respect of manufacturing, service sector and imports), states’ Commissioners of Commercial and Trade Taxes, states’ Commissioner and IGs of Registration and Stamps (in respect of transfer of immovable properties), states’ Commissioners of Road Transport (in respect of vehicle purchases), states’ Commissioners of Excise and Prohibition (in respect of liquor purchases), states’ Chief Conservators of Forest (in respect of purchase of forest produce), etc., who should be authorized to ensure smooth implementation of the legal ban on the transactions exceeding Rs.5000 per bill/invoice till the specified date (30/12/2016).New currencies in 500/1000 denominations are not to be introduced till 30/12/16 as the new high denomination notes may provide enough liquidity in the market to exchange the OHD notes outside the banking channel, which defeats the very purpose of bringing to books, the actual holders of unaccounted money.
If high denomination notes in 500/1000/2000 value are to be unavoidably reintroduced albeit in new design then their ratio should be restricted to only 5% of the total cash value as against the present ratio of 84%, as a result of which the regeneration of new black money will be restricted.
During the past couple of weeks the banks are preoccupied with cash exchange while all other banking transactions are affected. The above measures will help the banks recoup and serve better in regular banking operations even during the demonetization exercise.
Once the transactions below Rs 5,000 in OHD notes are allowed, livelihood issues for the labour class are automatically addressed.If the window period to deposit the OHD notes is advanced, the wait and watch of the money holders will end. They will deposit in the banks sooner than expected.
It is advised that the money holders in OHD notes should not park their money with other businessmen and instead should deposit in their own bank accounts. Such third party parking will invite invocation of THE BENAMI TRANSACTIONS (PROHIBITION) AMENDMENT ACT, 2016 because cash is also an asset and the asset held by a benami for the benefit of the actual owner is liable to be confiscated by the Government besides levy of 25% fine and jail term ranging from one to seven years, despite tax having been paid by the benami holder on cash deposits.
(The views expressed by Bandi Ramakrishna are purely personal. The author is a serving IRS officer working as Joint Commissioner of Income Tax based in Hyderabad)