As cashless shift makes tax evasion tough, resentment becomes obvious

Evading tax is intrinsic to us and we do it with an uncanny ease. And the fact that cashless transactions are spoiling the victory dance of stealing tax is making us even more resentful to the demonetisation process.

Let’s accept this; Narendra Modi government has been completely unfair in compelling us to change this habit.

Consider this: On a regular day a person visits a furniture shop in Jangpura-Bhogal in New Delhi. He selects furniture worth Rs 20,000 and offers to pay through his debit card. The shopkeeper conveniently informs the buyer that he needs to pay the amount at a nearby chemist shop. Reason: If the furniture shop owner takes the amount in his name extra 12.5 tax would be added to the bill and this “would make the purchase unnecessary costly for both; the customer and the buyer”.

 As cashless shift makes tax evasion tough, resentment becomes obvious


The buyer trying to be a law-abiding citizen, offers to pay the tax but the shopkeeper declines to accept the deal.”Either cash or payment at the chemist shop”, he puts forward conditions of selling his goods in categorical terms.

Visit to other markets in the city confirms the same pattern. Jugaad transaction is thriving and tax is being evaded. Let’s accept it again we are essentially compulsive tax evaders.

Demonetisation leading to cashless economy might help in curbing tax-evasion and that is precisely why the ‘great Indian middle class’ is resenting the demonetisation so much.

Post-demonetisation announcement on 8 November, reports started emerging about shops selling gold jewellery in the national capital, indulging in massive tax evasion by accepting demonetised currency notes.

Experts have stressed for long time that cashless economy will help the income-tax (I-T) department audit various transactions more accurately and help check the parallel economy. Also, it will help in curbing tax evasion and increase the taxpayers’ base.

Cash transactions have always facilitated the tax evasion. According to report published in the Mint a “significant number of transactions used to evade taxes by trading in penny stocks were cash deals”.

According the report an investigation by the tax department last year “uncovered a trail of Rs 38,000 crore involving manipulation in 84 BSE-listed penny stocks and through 5,000 listed and unlisted firms, many of them shell companies. The taxman’s report said at least 64,811 entities evaded taxes through such fraudulent methods”.

Ashutosh Dikshit formerly, joint secretary, ministry of finance, Government of India in an article published in the Financial Express, writes, “Tax evasion due to the prevalence of the informal sector starts with suppression of turnover to evade value-added tax and service tax by small and medium businesses and professionals which automatically results in under-reporting of incomes for income tax. The informal sector also absorbs capital from gains made through corruption and violation of regulatory acts which therefore cannot be reported as taxable income”.

He adds, “The systemic solutions to this are the rapid introduction of digital, mobile-based payment systems to replace cash transactions, a stringent reporting and penalty mechanism for benami transactions and assets (which has been pending for long) and the introduction of the nation-wide invoice based GST which is substantially self-regulating as a business needs a tax-paid invoice to claim credit against its own GST liability”.

According to an IANS report published on Firstpost, under Income Declaration Scheme (IDS) announced by Modi government this year, Rs 67,382 crore was received from 71,726 declarants excluding two high-value disclosures”.

The report stated that, “The Income Tax Department did not take into consideration the Rs 13,860 crore declarations made by Ahemdabad-based Maheshkumar Champaklal Shah, which was reported prominently, as well as another made from Mumbai”. This makes the extent of tax evasion clear.

An Indian Express report published recently talking about how cashless transaction can help in curbing tax evasion writes, “A move to digital payments would, indeed, make transactions more transparent and trackable by the taxman and to that extent, tax evasion more difficult. (It is important to keep the distinction between corruption and tax-evasion, though. In the popular mind, these two are synonymous, but as we have seen, they NEED NOT BE. There can be mammoth corruption that involves no tax evasion, and there can be plain vanilla tax evasion that involves no other corrupt deed than the evasion itself)".

Hindustan Times in an article published last year states that cash deals keep India’s parallel economy afloat and the ultimate loser is the government.

“Nearly two-thirds of India’s GDP, ($1.4 trillion or Rs 90 lakh crore), is a cash economy where buying goods, paying for services, or paying wages are all in cash. And while some of this is legitimate tax-paid money, quite a bit of it is not. Just how big is India’s black money economy? In 2011, three government think tanks were asked to estimate that. Their final report remains unpublished. But other, unauthorised estimates peg it at 25-30% of GDP or $600 billion annually”, states the report.

It adds, “The real loser is, of course, the government: it is deprived of an estimated $200 billion (or Rs 13 lakh crore) in yearly tax revenues because of black money. Consider this: India’s revenue, including indirect and direct taxes, is currently around Rs 9.1 lakh crore; if the black money that is swirling in the economy is reined in and accounted for, then (albeit theoretically) the government could declare a tax-free year!.”

In this context as cashless transactions are making tax evasion difficult, resentment becomes obvious.

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Updated Date: Dec 26, 2016 17:28:53 IST