The Hindu Business Line : Cash for vote charge: Will banking cash transaction tax throw up a trail?

Chennai, July 23 The jury is still out on whether some members of Parliament were paid to vote or abstain from voting in the confidence motion in the Lok Sabha on Tuesday.

But with large bundles of cash being flaunted, it did seem that the Department of Revenue would be rubbing its hands in glee.

The collections on the Banking Cash Transaction Tax this fiscal may yield a rich harvest!

The Finance Minister had introduced this levy three years ago to curb the black money menace.

Here is what he said as part of his 2005 Budget speech, while introducing the banking cash transaction tax: “I am concerned about large cash transactions, especially withdrawals of cash, when there is no ostensible purpose to withdraw such large amounts of cash. These cash withdrawals leave no trail, and presumably become part of the black economy. Therefore, I propose to introduce two anti tax-evasion measures: Firstly, I propose to levy a tax on withdrawal of cash on a single day of over Rs 10,000 or more from banks at the rate of 0.1 per cent. Thus, a person withdrawing Rs 10,000 in cash would have to pay a small sum of Rs 10. Secondly, I propose to require banks to report to the Government all deposits which are exempt from TDS on interest.”

Cash withdrawals of less than Rs 25,000 per day from a savings bank account of individuals and Hindu Undivided Families (HUFs) and less than Rs 1,00,000 per day in the case of businesses were exempt.

In his latest Budget speech, the Finance Minister did say that this levy would be withdrawn with effect from April 1, 2009.

One wonders whether the Minister would be forced to do a rethink after Tuesday’s episode.

A related fact that may be of interest while viewing this sordid drama in Parliament is the sharp increase in the circulation of high-denomination bank notes. According to the Reserve Bank of India’s annual report, notes of Rs 1,000 denomination rose from 421 million pieces in March 2005 to 937 million pieces as of March 2007 (valued at Rs 93,700 crore).

Similarly, notes of Rs 500 denomination rose by 50 per cent in the same period to about 4,508 million pieces (valued at Rs 2,25,400 crore).

The overall increase in circulation of all bank notes was at about 3.7 per cent during this period.

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