BES172: Budget ► Revenue ► Receipt ► Tax

PoEM,
CGT: root of
Recent Acts & GAAR
many BEPS, AEoI
Schemes [WEF1/4/17],
problems
AAR
Demonetizati
Tax Admin: Electoral-
on helped or
TDS, TCS…. Bonds
not?

Uniqueness

Soil Rate?
How did 97%
returned? Then is it a
failed
Short Term challenges experiment?
Goods & Services Long term Benefits?
Tax

Security Features
PPT Focus: Objective, factual. Not “analysis” for
Demonetization in India already taught in first lecture

• Declare 100|>
1946 • Demonetize 500|>
Did not
have
significa
nt impact
on cash!
1978 • Demonetize 1k,5k,10k
• Rs. 500 and 1000
2016, “Mahatma Gandhi series”
Nov • Except for specific usage
8th till a date (petrol,
hospital)
Elsewhere? HW
Self study Survey Ch3 last page
 Demonetizatio
Every bank note is legal tender
n
On RBI board’s recommendation, GoI
can notify specific bank notes (SBN) are RBI Act
no longer legal tenders. (=“demonetized”) 1934
8/Nov/2016: FinMin-> Dept of Section 26
Economic Affairs gazette notification “legal
Rs.500 and 1000 (86% of all notes) tender”
Every bank and treasury ordered to
deposit to RBI office
Aam junta ordered to deposit old notes in
Banks by 30 Dec 2016.
Demonetization “wholesale withdrawal
of currency notes from circulation.”
 Demonetizatio
Exchanging Notes @RBI: n
old Rs 500 and Rs 1,000 notes are no longer
RBI's liability from 31/12/16. Specified Bank
But union can give grace period to deposit these Notes (Cessation
notes to RBI. (e.g. NRI) with proof. of Liabilities)
RBI to credit notes in KYC bank account. Ordinance, 2016
False claims punishment: Rs.50k OR 5x the 30/12/16
claim value whichever higher.
Ceiling on holding old notes
Max. 10 notes for individual
Max. 25 notes for research / numismatics
Others allowed by court / RBI.
Else punishment: Rs 10,000, OR 5x the value of
notes whichever higher.
2017: Budget session - Specified Bank Notes ( Cessation of Liabilities ) Bill, 2017 to replace this
ordinance
 Sweden (2013)
But Old notes allowed till 2017

EU (2016)
500 euro stopped by 2018
Hyperinflati
War
on
Pakistan (2015)
Old notes to be accepted till
political
upheavals 2021!

unprecedented in
Corruption Black money
secrecy and
suddenness
Counterfeitin Terror
g finance
8 Nov-30 Dec.
 2015-16: Helicopter Money
ECB: buys bonds and “Destroys”
them
Rain of “New money”, High
“Liquidity”

Quantitative Easing
[2008-15]
Fed Reserve buys Demonetization
toxic assets, releases
new money “Destroys” SBN
“Reverse of helicopter
drop”
“helicopter hoover”
 Functions of money: first lecture

Medium

• As GDP ▲ Currency
use increase, for
transaction,
• Incl. high
denomination notes
since lifestyle ▲
(Pizza, movie)
1. 12.04% Cash to GDP ratio! one Cash reliance?

of the highest in the world

2. Currency: printing, transport etc. Numbers higher
1.7% of GDP (can reduce to 1.3% than China,
Japan, US
by digital payment promotion)
Out of total transactions: 68% by value and
98% by volume done via CASH
Was Black money stored in SBN? Let’s find via “Soil
rate”
Rs.10,20,50,100
Lower
denomination:
33% soil rate
“soil rates,” that is the rate at
which notes are considered to be
too damaged to use and have
been returned to the central
bank.
Was Black money stored in SBN? Let’s find via “Soil
rate”
Rs. 10 to 100 33%
Rs. 500 22%
Rs. 1000 11%
Transaction
Lower Storing black
frequency [10- money?
20 milk]
Compared to US $20,50,100 soil rates
~3 lakh cr (2% of GDP) is stored black
money in Rs. 500 and Rs.1000 Notes!
 News after two
months!!

SBN: total 15 lakh

cr.
Rs.54,00
3.6%
0 cr black
didn’t
money
return
destroyed
Soil rate: If 3 lakh crore
black money then ~20%
shouldn’t return!
9 Methods: HOW Black money in SBN came back in system?
Agents,
Money mules bankers Bankers: old
JDY & others < Exchanging notes-> RTGS
Link> notes without to shell firms
KYC
“Loans” to Agri. Income
Back-dated FD
poor & tax 0%:
in Cooperative
Advance backdated
[CBS, LINK];
salaries Mandi-sales
Backdated
Donations trust, Misc. creative
gold, assets
temples, pol. ways: Book-
purchase,
Parties cancel tickets
SELL
 Even if 97% SBN “Returned”:
Demonetization is tax on black money

PM Garib Kalyan
Don’t submit: Back-dated
Yojana 50%,
100% invoice: __VAT%
freeze

Shell companies: JDY __%

Agent, bank
18.5% MAT.
official __% Poor man
Benami Act, SEBI
commission commission
penny stock

Labour: ATM
Advance salary:
withdrawal
Interest lost!?
commission %
पान के गल्ले पे बैठने वालो…. तुम लोग गलत हो!!
Demonetization is NOT A FAILED
 Demonetization = redistribution of WEALTH
Rich sitting in ivory towers

Poor standing in ATM-

Private sector
• More service, excise, VAT, GST
queues
registration

Public sector (Govt)

Post-Demonetization, IT launched Operation
Clean Money:
1. Phase-I: 18 lakh people asked to explain
their deposit OR pay penalty.
2. Phase-II: 60k people who made high value
transactions post Demonetization.
Demonetization: short term challenge, long term benefit

impact Short Long

Bankin Deposit Lending

g interest ▼ interest ▼

affordable
Real Sales ▼ Prices ▼
houses =
Estate migrant
mobility, rent ▼
Pvt wealth:
Public
Wealth Real estate
price ▼
wealth ▲
Demonetization: short term challenge, long term benefit
impact Short Long

Tax Workload
“notice”, Compliance
collection Analytics

Broader Job loss, farm Stability,

economy income, films “Formal jobs”

GDP Slowdown Improvement

SELF Study: Eco survey ch3, table 2 “impact of dem”

Download LINK
 Survey Ch3. Demonetization

Jobloss, Secret agenda of

social disruption, solving NPA problem,
deaths in ATM even PAC reprimanded
lines. Urjit Patel!

• Survey is not "public forum" for discussion and criticism. सर्वे

“गल्ला-पुराण” नही है.
• Short term challenges, long term benefits.
• Let the data come.
• Q3-2016 growth rate 7% how? <more in BES17”4”: GDP>
Survey Ch.3 Demonetization : misc. observations

India is “Above the line”= Corruption less yet SBN high

1. Either corruption is under reported
2. Heavy use of cash for transaction (soil rate)!? | “STORE”.
(black)

International
SBN as per corruption
 Dem = decrease
Currency with public : GDP cash:GDP By 2%

During inflation,
declines, as more
invested in gold, real During inflation,
estate. declines, as more
invested in gold,
real estate.
 High value notes as percentage
of GDP

Timepass page-fillers in
survey
 High income countries don’t have high
denomination notes!! but they’ve
lower inflation and price levels!

Timepass page-fillers in
survey
29 pages bol bachchan:
1. introduction, conclusion
2. Table 2 (impact) and table 3 (other nations)
3. “interoperability” digital payment already taught
4. Why did not GDP growth rate fall drastically, in Q3
<GDP lecture under BES17”4”>
 Security features: paisaboltahai.rbi.org.in

Corruption Black money

Counterfeitin Terror
g finance
Coin, medal, currency: Front side “obverse” side

VH=
Nothing

Antonym of “Obverse” is [SSC CGL,

IBPS-CWE]
a. Converse
b. Diverse
c. Inverse
d. Reverse
 Verticle
rectangle
 Old notes: Gandhi right side- looking @left

Diamond
 Coin, medal, currency: Front side “obverse” side

VH

VH
watermark VH
See
through
register

500 Color shift

thread Sr. no increase font
size
Not microchip
Mahatma Gandhi (NEW) series notes.
In 10, 20, 50,100 notes: Gandhi on right side seeing towards
VH: 500 note= 5 lines; 2000 notes= 6 lines.
Hence “reasoning” and aptitude
skill asked in competitive exams
for officers selection. Else 20
lines would be here. Inconvenient
to VH
 SBN: Banned notes (REVERSE SIDE)

Language
panel shifted
towards
middle
 What’s on
backside
Reverse?
Red fort
Mangalyan

Fake currency
1.Scan and printed
2.ATM “Children's bank of
India” – bank’s
responsibility.
3.FICN (and even when
done, profit margin ▼)
1. 1988: Australia first tried. ~20 Plastic Notes
nations use it now.
2. 2017, March: RBI to launch
polymer based Rs.10 notes. - Counterfeiting
- Wear and tear
3. Trial in 5 cities: Kochi, Mysore,
Jaipur, Shimla and Bhubaneswar
[geographic and climatic
diversity.]
 गल्ले पे चर्चा: BTT: Banking transaction Tax
PoEM,
CGT: root of
Recent Acts & GAAR
many BEPS, AEoI
Schemes [WEF1/4/17],
problems
AAR
Demonetizati
Tax Admin: Electoral-
on helped or
TDS, TCS…. Bonds
not?

Uniqueness

Soil Rate?
How did 97%
returned? Then is it a
failed
Short Term challenges experiment?
Long term Benefits?

Security Features
1. Withdraw high value notes The concept
(replaced)
2. Abolish all taxes except import Pune-
duty Arthakranti +
Baba Ramdev
3. Prohibit cash transaction >2k
4. Only digital/bank payment.
5. 2% tax on banking transaction
BTT Share
(credit, debit) Unio 0.70
Why this proposal impractical?
6. No tax on depositing or n %
14 FC: union (58: 42) states
th
0.60
withdrawing money from bank.
BTT: 0.7/2= Union gets 35% (Defense ?) State
%
True that union getting part of what used
to be State’s sales tax / VAT. Still quantity 0.35
Local
wise share will far less..because <next %
 Why impractical
Loophole: 500 x 5 =
2500/- ; Inspector raj,
cash
bribery transaction
Direct tax: progressive; upto 2k
permitted,
Indirect : regressive without tax
BTT (2%): Flat => -----
bank 2%
regressive => hurts poor
more
Indirect Tax abolished:
petrol, diesel, FMCG
cheaper
Indirect but demerit goods
tax: Demerit 2k bottle in cash= no
Goods
 BTT
Australia, Argentina, Brazil.
Tried and reverted to
conventional tax system
7th Schedule- drastic Why
amendment! Even GST was impractical?
difficult (petrol, diesel,
tobacco, deshi and
whatever else Devgan
touched- had to be kept
out!)
1. GST: apply on land and other Survey 2017
immovable property 5 pronged
2. ▼ individual income tax rates and real strategy
estate stamp duties [Laffer Curve] foreign
3. ▼ corporate tax rate at a fast speed deshi black
(budget-2016: in next five years: 25%) money focus
more!!
4. Tax administration: reduce harassment,
discretion- online systems: less
interaction between tax payers and tax
officials
5. Widen income tax net gradually
consistent with constitutional
arrangements. (= AGRICULTURE!!)
रट्टा मारो जिंदाबाद!

If BTT is impractical, then what is

GSM4 Ethics Case Study: how to communicate a policy proposal using “right
words”!?
 BES172: Budget ► Revenue ► Receipt ► Tax

Goods & Services

Tax
Black Money