Note ban: Survey calls for ‘carrots’ to balance the demonetisation ‘stick’

After inflicting the demonetisation pain, it is now time to shower relief on people with frayed nerves.

To this end, the Economic Survey has suggested a five-pronged strategy that could act as the carrots (complements) to the potentially powerful ‘demonetisation stick’.

The most significant suggestion is that Survey has made a case for inclusion of land and other immovable property within the scope of proposed Goods and Services (GST). The current proposed GST regime does not cover real estate.

Land and immovable property are seen as big source of black money creation. A GST with broad coverage to include activities that are sources of black money creation — land and other immovable property – should be implemented, the Survey suggested.

The Survey noted that demonetisation could have particularly profound impact on the real estate sector. In the past, much of the black money accumulated was ultimately used to evade taxes on property sales. To the extent that black money is reduced and financial transactions increasingly takes place through electronic means, this type of tax evasion will diminish.

The Survey also highlighted that weighted average price of real estate in eight major cities, which was already on a declining trend fell further after November 8 last year.

Reduction in Income and Corporate tax

As part of the five pronged strategy, the Survey has called for reduction in the individual income tax rates and also reduction in real estate stamp duties. Also, the timetable for reducing the corporate tax rate could be accelerated.

The Survey also said that income tax net could be widened gradually and, consistent with constitutional arrangements, could progressively encompass all high incomes (After all, black money does not make fine sectoral distinctions).

It has also suggested that tax administration could be improved to reduce discretion and improve accountability.

srivats.kr@thehindu.co.in

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