*Won’t hound those making small deposits
Neeraj Rohmetra
NEW DELHI, Nov 10: Union Finance Minister Arun Jaitley said today that de-monetization of Rs 500/1000 currency notes would help to curb terror funding in entire country especially Jammu and Kashmir and would go a long way in strengthening national security.
Addressing Economic Editors’ Conference followed by an inter-action here this morning, Jaitley, responding to a question by Daily Excelsior Executive Editor Neeraj Rohmetra, said: “one of the major objectives of denomination of Rs 500/1000 currency notes was to check terror funding.
“The de-monetization (of big current notes) will help us to identify sources of terror funding. All channels of terror funding will be blocked with the major decision announced by Prime Minister Narendra Modi on Tuesday”.
Asserting that ban of Rs 500/1000 currency notes will strongly help in strengthening national security, the Finance Minister observed that it would choke terror funding and help Centre and State Governments to curb the menace of terrorism.
In his detailed reply to Excelsior’s question of impact on terrorism by de-monetization, Jaitley made it clear that apart from striking hard at the black money, one of the major motives of the new scheme was to tackle the terror financing.
It may be mentioned here that there had been very specific inputs of Intelligence agencies that fake currency pumped by Pakistan was being used for sustaining militancy and separatism in Jammu and Kashmir. With de-monetization of big currency, the Government is confident that terrorism would be hit hard as their all major channels of terror funding would be blocked and cash in hands of terrorists and their agents would be reduced to trash. And, if the militants try to exchange cash using their Over Ground Workers, their connections would be exposed as Income Tax authorities were keeping strict vigil on all big transactions.
Replying to another question on implementation of Goods and Services Tax (GST) in Jammu and Kashmir, Jaitley said due to special status enjoyed by the State under Article 370 of the Constitution of India the State is evolving its own mechanism but added that the Finance Ministry was in talks with the State.
“We are in talks. Jammu and Kashmir wants to come on board but they are working their own provisions and mechanism,” the Finance Minister said, attributing delay on part of joining GST Council to Jammu and Kashmir.
Asserting that Jammu and Kashmir is a consumer State, Jaitley said it will benefit out of the GST.
Jaitley said the Centre is making all efforts to build consensus on sticky issues, especially on jurisdiction of assesses, to ensure GST rollout from April 1, 2017.
“We are making all efforts to introduce GST from April 1, 2017. GST has to be implemented latest by September 16, 2017, and if it is not implemented by then, then States will not be able to collect their share of taxes, and hence there is not enough scope to further delay the decision,” he said.
Jaitley said the Government has covered a lot of distance for implementation of the GST and it does not want to resort to voting to decide on any issue at the GST Council meeting.
“We have already sorted out 10 issues. The issue of dual control still remains, there is no reason why we will not be able to work out a reasonable solution on this,” he said.
“One of the objects has been that, since the GST council is a federal decision making process and the manner in which it functions in the initial years will lay down the precedent for the future rather than resorting to voting and division in every small issue. We have been trying to discuss, re-discuss and then reach a consensus and so far most of the major issues we have been able to resolve through consensus,” Jaitley said.
The issue of dual control, which deals with who will control which set of assesses under GST, has been holding back the negotiations. Jaitley and his State counterparts will meet on November 20 to work out a “political solution” on the issue and the GST Council will formally take up the issue on November 24-25.
“Only the last stages (of decision making) remain and I do hope we (GST Council) are able to resolve that through a larger consensus also. And this form of functioning of the Council where discussion and consensus is a preferred option, is a precedent we are trying in a federal decision making body to establish,” Jaitley said.
He added that reforms are going on in the direct tax structure and other areas. “If you have seen from the Insolvency Bill to the GST and now the decisions in the GST Council, our preferred option has been consensus and we hope to utilize that preference itself,” the Finance Minister said.
Assuring people that taxman will not hound those making small deposits in scrapped Rs 500/1,000 currency, Jaitley advised them not to throng banks as there is enough time to exchange the junked notes.
He said, however, that those depositing large amounts of unaccounted money will have to face the consequences under tax laws, which provide for tax and a 200 per cent penalty.
“With regard to people making small deposits, nobody will face any question or harassment of any kind. People who have small amount of cash at home for exigencies and emergencies, they can deposit that in their account. And the revenue department is not going to take notice of small depositors,” Jaitley said.
He added that deposits within the tax exempted limit can always be made within the banking system without any questions being asked.
“It’s only people with large amounts of undisclosed monies who will have to face the consequences under the tax laws,” Jaitley said.
On whether the demonetization of Rs 500/1000 notes will help weed out black money, Jaitley said this is not an isolated initiative and the decision has to be seen in the backdrop of various steps being taken including GST roll out.
“You will have the currency squeeze that will take place because a lot of static currency is not going to come back into the market. You have the GST which will be implemented, which is a far more effective system where tax evasion will be much lower and compliance will be much higher. You have parallel movement to rationalize your direct tax rate,” he said.
Jaitley said the collective impact of these steps will act as a great disincentive for black money hoarders.
“Whether that will be totally eliminated in future that I cannot say today, but certainly it would be dis-incentivized”.
Observing that temporary hardship is no reason to perpetuate a system where black money prospers, he said people should be prepared for a “temporary short-term hardship in order to have a far cleaner and better system for the future”.
He said RBI and banks are taking all steps necessary to ensure that minimum inconvenience is faced by people while trying to ensure that at the earliest, the requisite currency is available.
“We do believe that there is no need to rush in the initial days because people have a lot of time till December 30. Therefore, the more the deposits and exchange are spread out, the more will be the convenience to people itself,” he said.
There will be a few days of inadequacies of currencies and some impact on local purchases, but in the medium and long run, the overall impact of the recent steps that we have taken on the economy will be positive, Jaitley said.
“In short run it (consumption) could (be affected). Eventually a very large part of this currency which is being removed was also lying static and therefore, once over the next few weeks replacement takes place, the current level of consumption will have to gradually come back,” he said.
When asked banks’ capital needs would come down with spurt in deposits, Jaitley said: “They will still need money for recapitalization, but obviously the kind of resource available with the banks would increase”.
Jaitley further said that both direct and indirect tax collections have been reasonably good this year.
There has been a spurt in public expenditure and India is getting good global investment, he said.
“Overall, I feel that notwithstanding constraints of global economy, we are doing reasonably well on our own intrinsic strength,” he said.
Expressing confidence about meeting the fiscal deficit target for the current fiscal, he said both spending as well as revenue increased last fiscal but the Government achieved the deficit target of 3.9 per cent of GDP.
“We can achieve fiscal deficit target only by two ways – you earn more, you spend less. Last year, we have already set precedent that we earned more and we spend more and we still maintained the target and we hope to do so this year as well,” he said.
On a question about Donald Trump winning US Presidential election, Jaitley said: “When a large democracy through democratic process elects the Government, I think everybody has to respect the verdict.”
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