The Reserve Bank of India’s planned withdrawal of Rs 2,000 banknotes will help the ecosystem fight corruption, the ruling Bharatiya Janata Party’s National Spokesperson for Economic Affairs said. “Prime Minister Narendra Modiji’s vision is that we have to eradicate corruption completely,” Gopal Krishna Agarwal told Moneycontrol in an interview.
“Many steps have been taken by the prime minister, and this is part of the government’s initiative of eradicating corruption and strengthening the ecosystem to fight it.”
On May 19, the Reserve Bank of India (RBI) announced that it will be withdrawing the Rs 2,000 banknote, and gave the public until September 30 to either exchange or deposit the currency with them in bank branches. However, the note, first introduced after demonetisation, will continue to be legal tender.
Same impact as demonitisation 2016?
The move reminded several of the demonetisation of November 2016, when Prime Minister Modi banned Rs 500 and Rs 1,000 notes overnight in a bid to curb black money.
Unlike demonetisation, which took a large chunk of currency out of the economy, the withdrawal of Rs 2,000 notes won’t impact the economy as it was not used much in transactions, Agarwal said.
“I don’t think it will have much impact on the economy, but will strengthen the government’s ability to eradicate corruption. Also, with more and more digital transactions happening, large denomination currency is not required now,” he added.
Establishing an audit trail
He further said that the government’s recent move to raise the tax collected at source (TCS) for certain overseas transactions was in line with its plans to establish an audit trail for economic activities.
This would lessen tax evasion and also curb corruption, he added.
“Our government wants to establish a complete audit trail of every transaction. We have done that with the implementation of GST, virtual (tax) assessment, direct benefit transfers, digital transactions, etc.”
However, the government has noted the people’s demand on TCS and clarified that small ticket spending won’t be taxed, Agarwal explained.
Credit / debit card spends abroad were brought under the ambit of the Liberalised Remittance Scheme (LRS), whereby all such spends would attract a TCS of 20 percent.
Following widespread backlash, the finance ministry exempted international spends of up to Rs 7 lakh from TCS.
International card spends were brought under LRS on May 16, and the 20 percent TCS will kick in from July 1. Until then, TCS of 5 percent will apply for such spends above Rs 7 lakh.
Balanced tax collection
On overall tax collections, the BJP spokesperson said that a balance needs to be struck.
“Government has to strike a balance between tax harassment and tax collection,” Agarwal said. “At times, bureaucrats and administrative people, in their overzealousness, cause harassment.”
Going ahead, the use of analytical tools and artificial intelligence in establishing audit trails will help reduce tax harassment, he added.