The DeMon casts its shadow

Rajeev Jayaswal

Date: January 15, 2014; Place: Gandhinagar; Occasion: Ficci National Executive Committee meeting; Speaker: Gujarat Chief Minister and BJP’s prime ministerial candidate, Narendra Modi. The prospective Prime Minister of India had made several promises that day. One of these was: “Ending tax terrorism”. After becoming the Prime Minister, he did take some bold decisions to reform the economy and unearth tax evasion. The most radical of these being the demonetisation, which cast a shadow on the entire year.

The year saw a remarkable jump in bank deposits as almost the entire `15.44 crore scrapped notes came back into the banks. Interestingly, deposits in the Jan Dhan accounts — owned by the poorest of the poor — saw a 900 per cent surge. Lakhs of dormant accounts suddenly became active. Naturally, this invited the taxman’s attention ushering in a new wave of tax terrorism, where most of the victims were poor gullible people, ignorant of the reprisal that would follow their act of keeping others’ money in their accounts in good faith. So when taxmen claimed to have identified about 18 lakh suspicious cases in `23.22 lakh bank accounts, even scrupulous citizens kept their fingers crossed.

The demonetisation tremor was followed by a tax tsunami in less than eight months, when the government rolled out an ill-prepared Goods and Services Tax (GST) in a haste. The informal sector — the lifeline of the country’s economy — could not bear the double whammy. The Gross Domestic Product (GDP) plunged to a three-year low at 5.7 per cent. The small and medium sector was badly hit. The self-employed too joined the already overcrowded job market, knowing well that the economy would eventually recover but not their businesses. Both businessmen and consumers suffered because of numerous amendments to the GST rates and rules. Taking advantage of the confusion, unscrupulous retailers and traders took consumers for a ride.

The input tax credit forced small vendors to get themselves registered under the GST regime or lose business. They were caught between the devil and the deep sea as the taxmen would hound them if they got the GST registration or would lose business if they availed of exemption from registration. The cumbersome compliance procedure under the new tax regime forced many small manufacturers to shift to trading in Chinese goods — a serious blow to the government’s ‘Make in India’ programme. The opposition dubbed the GST as ‘the Gabbar Singh Tax’.

Consumers as well as businessmen were hit by other low-profile economic policies of the government. Along with the wilful defaulters, the Insolvency and Bankruptcy Code (IBC) ruled out giving another chance to genuine entrepreneurs to revive their failed ventures. While the stringent law was good to punish businessmen like Vijay Mallya, there were some legitimate business failures due to exogenous reasons.

The law also put susceptible homebuyers into a quandary. Customers of insolvent real-estate firms like Unitech were treated as unsecured creditors, technically they couldn’t get back their investments in case of liquidation of the company. The policymakers presumed that the issue would be addressed by the sector regulator, the Real Estate Regulatory Authority.

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Not so sporting

Dominated by small and medium entrepreneurs, the Rs 2,500-crore sports goods industry is yet to come back to normalcy after the implementation of the GST. The industry is concentrated mainly in Jalandhar in Punjab and Meerut in Uttar Pradesh, with the former contributing 60 per cent of the total sales and the latter contributing the remaining. Initially, it was high taxes on certain sports items, and now the industry was grappling with the issues of GST refund. Having suffered 

25 to 30 per cent drop in sales in the 

first nine months of the current fiscal year, the industry attributed the decline in sales to high taxes and uncertainty. The industry also suffered due to variable tax rates on different items of same game or sports. For example, a cricket bat and pad was taxed at 12 per cent while the cricket helmet was put under 18 per cent tax bracket. Similarly, gloves made of cotton and leather attracted different rates. The GST on raw material too varied from 8 to 28 per cent. The industry also faced issues pertaining to GST refund. The six-month delay in the GST refund hit the working capital of manufacturers and outbound shipments.

Riding the Bitcoin wave 

Warned well that the bitcoin bubble will eventually burst, people kept on betting on it relentlessly. One bitcoin, valued at $0.09 in July 2010, was trading at $2,328 in August this year. Thereafter, it saw an unprecedented surge in its value, touching nearly $20,000 in the third week of December only to crash below $13,000 by the Christmas eve. This alerted the Income Tax department and it started conducting nationwide crackdowns on bitcoin exchanges. Coinsecure, an exchange in India, downplayed I-T investigations. The company said taxmen visited the exchange to cryptocurrencies like bitcoin and their ecosystem. The worried RBI, too, pressed the alarm button. It issued two cautionary notes asking people not to invest in the cryptocurrency. Notwithstanding the RBI’s warnings, many Indians jumped on to the bandwagon. The cryptocurrency craze infected even superstars like Amitabh Bachchan. The crazy swings of bitcoin prices reportedly added more than $100 million to the megastar’s fortunes. Bachchan is probably the first big name from the country to be associated with this buzzword — albeit indirectly and because of a small investment that is at least three to four years old.  

Zero tolerance 

The government received a complaint against DK Meena, Deputy Commissioner of Income Tax, posted at Surendranagar, Gujarat, for allegedly harassing a taxpayer in a scrutiny case. The officer allegedly demanded illegal gratification through the taxpayer’s chartered accountant for favourably completing the income tax assessment. The audio recordings of conversations were the proof. The Central Board of Direct Taxes (CBDT) examined the issue and found serious lapses. The finance ministry issued a statement in this regard to convey a strong message that such malpractices would not be tolerated. “In order to verify the veracity of the allegations, case records were requisitioned immediately by the vigilance directorate of the CBDT. On examination of the case records, serious lapses and irregularities were found which led credence to the allegations made against the officer. The matter is under investigation,” the statement issued by the finance ministry said. Although, the officer has been suspended, action against the culprit is still pending.

Cracking the GST code

In less than six months, people have devised mechanism to evade the GST. Every article sold in the market has two values — with GST and without GST. For instance, the shopkeeper will charge you Rs 5,000 for a product if you pay in cash. If you insist on using your debit or credit card, you will be asked to pay Rs 6,400. 

On radar of the I-T cell 

The Income Tax Department identified more than one lakh individuals and business entities who had deposited huge cash in banks after the demonetisation last November. Those who escaped the scrutiny of the taxman last year kept their fingers crossed. The department plans to nab the sharks before going after the small fish.

Inflation crosses 4 per cent

The annual inflation in November was on a 15-month high at 4.88 per cent. As country’s retail inflation crossed the RBI’s medium-term target of 4 per cent, it is likely that it would be under pressure to raise policy rates in 2018. Consumers will see hardening of interest rates, particularly for personal loans for homes and cars.

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In the news

Sensex at all-time high

Unperturbed by the growing inflation rate and sluggish economic growth, the stock market was bullish on Tuesday, just after the long Christmas weekend. The Sensex crossed 34,000 points while Nifty50 closed at 10,531.5. This is good news for those who had purchased stocks when these were cheap. Aspiring investors need to trade cautiously because entering the market at its peak is often risky.

New currency notes 

The RBI issued new Rs 200 and Rs 50 denomination banknotes in August. The new series notes have been signed by RBI Governor Urjit Patel. The new notes were launched on the occasion of Ganesh Chaturthi. The Delhi High Court recently asked the government and the RBI to examine these new notes as these are apparently not convenient for the visually-impaired.

Debate over Aadhaar 

Even as the case of mandatorily linking of Aadhaar number with various utilities is pending in the Supreme Court, the Finance Ministry is insistent. It has, however, extended the deadline to March 31, 2018. Accordingly, the last date for linking Aadhaar with permanent account number (PAN) as well as phone numbers is March 31. Don’t be surprised if Aadhaar becomes mandatory for Facebook and Twitter accounts. 

The FRDI bill

Savings accounts holders across the country are nervous that the proposed Financial Resolution and Deposit Insurance (FRDI) bill will rob them of their lifetime savings if their banks turn insolvent. They are upset about the ‘bail-in’ clause, whereby the depositors’ money would be used to salvage a rogue bank. At present, the taxpayers do such ‘bail-outs’. The Finance Minister has, however, allayed the fears.