Got my cooking gas cylinder refill from Indane delivered yesterday. Even though Indane is a central government PSU, the vendor refused to accept PayTM, cheque or bank transfer, asking for hard cash only. If the government cannot ensure cashless transactions for its own departments and their vendors even after a month of launching this cashless drive, how can it accept private companies, merchants and traders to do so? There are very few, at two ends of the spectrum, who are adopting PayTM - the very large who are already okay with accepting payments in credit card/debit card, and those who are really very small traders and see this as a saviour in the current times where they have lost 70-80% business. Neither of those loses anything in terms of additional white money sales and taxes. The real problems lies amongst those in-between these two segments - the mid-level traders who suppress sales and income.
I realized this just now when I learnt through my neighbourhood chemist the real reason why merchants like him are not adopting PayTM or other non-credit card/debit card payment options. Accepting payments through PayTM or other wallets - that even the poorest can have and use - would mean virtually 60-70% payments for all their sales would come to them in white money against less than 10% that comes currently (through credit card/debit card payments, where card penetration is small and usage is virtually negligible). Which means they will now need to pay sales tax on that additional 50-60% (actually 6-7 times more than what they reported earlier), plus income tax as well on additional reported income by them.
But besides that issue, the bigger problem is elsewhere. If they suddenly start showing 6-7 times greater sales (60-70% reported sales now against 10% reported sales till last month), the sales tax authorities will definitely question them. This is definitely a highly avoidable situation, which they would go to any length to avoid even at the cost of losing some sales in the interim.
However, this final one takes the cake in the non-adoption of PayTM or UPI. They purchase a bulk of their merchandise in cash and sell in cash, with no bills for purchase or sales. If they adopt PayTM, even bigger will be this issue of now having to declare their total purchases (which they suppressed till now), as they cannot suddenly show sales of Rs. 6-7 lacs/month against purchase of Rs. 80,000/- only against which they till now showed sales of Rs. 1 lac. There are two problems contained herein. One, they definitely don't want to show this increase in sale and purchase, as it will also result in them having to pay income tax, which they totally avoid till now. Two, their distributor doesn't want to show increased sales from him, and thereby forcibly having to show increased purchases by him, and simply refuses to sell on cheque more than 20% of the total merchandise.
Given this, it is clear that the black economy will continue to exist and black money will continue to be generated even after 30th December, 2016. Because we, the people, want it to be so, and the government and its officials actually encourage us to do so, by turning a blind eye to the real source of generation of black money in the consumer goods economy - the factories and the import hubs. The producers/importers are encouraged to avoid invoicing and taxes by corrupt government officials who - as we all know - cannot function fully without the blessings and guidance of their seniors. This leads to a flow of unreported production/import, leading to black money being generated at multiple levels - right from the sourcing done by the factory/importer, to its production/repackaging, to its distributors, to its wholesalers and, finally, to the retailers.
The only way to stop this is at the production/import level (at factories and ports of import) itself, by ensuring everything is fully accounted for before leaving the premises. That way, everything will need to be fully invoiced, and will be able to move through the white money channel only. Wonder, given the economic compulsions and commercial friendships of various political parties, if we can ever see that happening.
I realized this just now when I learnt through my neighbourhood chemist the real reason why merchants like him are not adopting PayTM or other non-credit card/debit card payment options. Accepting payments through PayTM or other wallets - that even the poorest can have and use - would mean virtually 60-70% payments for all their sales would come to them in white money against less than 10% that comes currently (through credit card/debit card payments, where card penetration is small and usage is virtually negligible). Which means they will now need to pay sales tax on that additional 50-60% (actually 6-7 times more than what they reported earlier), plus income tax as well on additional reported income by them.
But besides that issue, the bigger problem is elsewhere. If they suddenly start showing 6-7 times greater sales (60-70% reported sales now against 10% reported sales till last month), the sales tax authorities will definitely question them. This is definitely a highly avoidable situation, which they would go to any length to avoid even at the cost of losing some sales in the interim.
However, this final one takes the cake in the non-adoption of PayTM or UPI. They purchase a bulk of their merchandise in cash and sell in cash, with no bills for purchase or sales. If they adopt PayTM, even bigger will be this issue of now having to declare their total purchases (which they suppressed till now), as they cannot suddenly show sales of Rs. 6-7 lacs/month against purchase of Rs. 80,000/- only against which they till now showed sales of Rs. 1 lac. There are two problems contained herein. One, they definitely don't want to show this increase in sale and purchase, as it will also result in them having to pay income tax, which they totally avoid till now. Two, their distributor doesn't want to show increased sales from him, and thereby forcibly having to show increased purchases by him, and simply refuses to sell on cheque more than 20% of the total merchandise.
Given this, it is clear that the black economy will continue to exist and black money will continue to be generated even after 30th December, 2016. Because we, the people, want it to be so, and the government and its officials actually encourage us to do so, by turning a blind eye to the real source of generation of black money in the consumer goods economy - the factories and the import hubs. The producers/importers are encouraged to avoid invoicing and taxes by corrupt government officials who - as we all know - cannot function fully without the blessings and guidance of their seniors. This leads to a flow of unreported production/import, leading to black money being generated at multiple levels - right from the sourcing done by the factory/importer, to its production/repackaging, to its distributors, to its wholesalers and, finally, to the retailers.
The only way to stop this is at the production/import level (at factories and ports of import) itself, by ensuring everything is fully accounted for before leaving the premises. That way, everything will need to be fully invoiced, and will be able to move through the white money channel only. Wonder, given the economic compulsions and commercial friendships of various political parties, if we can ever see that happening.
