Now, reform tax regime and election funding
The common man by and large, despite the huge inconvenience he has been facing due to the demonetisation decision, has been supportive of the drive that seeks to flush out black money and choke terror funding. Therefore, the Narendra Modi Government owes it to the citizens to take the matter to a logical conclusion, which is to tap other avenues with equal aggression, where the black economy plays a dominant role. One such area is electoral politics. Prime Minister Modi has done well to seek a consensus at an all-party meeting ahead of the Winter Session of Parliament on both transparency in funding elections and holding simultaneous polls. It's no secret that unaccounted money fuels the country's electoral process. As a result, many deserving aspirants who do not have access to black money are unable to contest while the big moneybags with loads of such wealth push their way through. The high frequency of elections in some part of the country or the other through the year makes the situation worse.
Modi had flagged the issue earlier too when he had called for simultaneous elections to the lok Sabha and State Assemblies. The appeal, unfortunately, did not receive as bipartisan a support as it ought to have. But there is no running away from the solution — or at least one of the solutions — to tackle the black money menace. One can only hope that good sense prevails and the Prime Minister's appeal gains traction. It must be underlined that several experts outside the political sphere have strongly supported the idea. Since the demonetisation decision is being debated in the Parliament session, one should hope that issues such as state-funding of elections and simultaneous polls too will be taken up alongside, either now or sooner than later. Both these matters must be seen as important elements in a larger game plan to curb the use and proliferation of the parallel economy.
Tax reforms, both in direct and indirect taxation, too must be expedited. One of the prime ways to generate black money is through avoidance of tax payment. Although now much simplified, the process is still cumbersome. But more importantly, the tax structure is such that it incentivises people to avoid disclosing their real income. The smaller tax-payer and the salaried class have little option but to pay up or face harassment. But the large fish that often get away by revealing only part of their income, end up creating the black economy. If tax collection mechanisms have seen improvement over the years, with technology being a key contributor, they have not been complemented by major taxations reforms. It's time the Government made significant changes to the direct tax regime. As for indirect taxes, one hopes the new Goods and Services Tax (GST) system will be able to deal with the issue. It's important that the various tax rates decided upon are executed smoothly.
Meanwhile, there are other areas that need the Government's forceful intervention to curb black money circulation. One is the realty sector. Already, there are reports that prices of real estate have fallen drastically post-demonetisation. But this must sustain. Unscrupulous elements who create black money in the bullion market too have to be targeted.