Jaitley hints at low tax rates due to demonetisation

Jaitley said the government at some stage would make taxes more reasonable which will apply to both direct and indirect taxes.


Finance minister Arun Jaitley held out hope of tax cuts in the future as higher revenue gets generated by a cashless system that will allow transactions to be tracked, following the November 8 demonetisation announcement. “Future transactions would be substantially digital and once they are substantially digital they get caught in the tax net,” he told reporters on Tuesday. “Therefore, the future taxation level (collection) would be much higher than what is currently being collected.

He said cancelling the old Rs 500 and Rs 1,000 notes will help India move toward a “less-cash” economy and rising digital payments will deliver multiple benefits. The government was rapidly replacing old currency with new notes and significant amounts will be injected into the banking system over the next three weeks.

There are economic costs of dealing in cash, there are social costs of dealing in cash. These are the costs which the system has to bear,” he said, adding that demonetisation was a system overhaul by the government. “It is our strategy that from high cash-dominated economy we should become a less cash economy where the amount of paper currency comes down… Cash will still exist and there would be a greater digitisation.”

The government will collect taxes on money that’s come into the system and can’t be accounted for, he said. Besides, the banking system will have a lot more cash, which will boost its ability to support the economy with low-cost lending.

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