The windfall gains from the tax amnesty scheme PMGKY post-demonetisation should be deployed in strengthening government’s balance sheet rather than being used for government scheme, the Economic Survey said today. The pre-Budget pointer prepared by Chief Economic Adviser Arvind Subramanian wanted the fiscal windfall from levy of 50 per cent tax on deposits made from unaccounted old 500 and 1000 rupee notes to be used either for creation of a Public Sector Asset Rehabilitation Agency or compensating states for shortfall in revenue due to implementation of GST.
While the government allowed 50-day window to deposit the junked currency, the Survey said, “The amount of unreturned high denomination notes is not the proper measure of the amount of black money that has been ‘taxed’ away from holders of illicit wealth.” In addition, one needs to add the taxes collected on money declared under disclosure scheme (PMGKY), as well as the ‘taxes’ paid to intermediaries who laundered money, it said.
“There will be a fiscal windfall both from the high denomination notes that are not returned to the RBI and from higher tax collections as a result of increased disclosure under the Pradhan Mantra Garib Kalyan Yojana (PMGKY). Both of these are likely to be one-off in nature, and in both cases the magnitudes are uncertain,” it said. PMGKY is the name of the new tax amnesty scheme that provides for a 50 per cent tax on income being disclosed and parking of a quarter of such income in a zero-interest bearing deposit for four years.
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“One key question will be the use of the fiscal windfall (comprising the unreturned cash and additional receipts under the PMGKY) which is still uncertain. “Since the windfall to the public sector is both one off and a wealth gain not an income gain, it should be deployed to strengthening the government’s balance sheet rather than being used for government consumption, especially in the form of programmes that create permanent entitlements,” it said. The Survey said the “best” use of the windfall would be to create a public sector asset reconstruction agency so that the twin balance sheet problem can be addressed, facilitating credit and investment revival.
Alternatively, it could be used as GST compensation fund that would allow “the (GST) rates to be lowered and simplified; or toward debt reduction.” “The windfall should not influence decisions about the conduct of fiscal policy going forward,” it warned. As per the government plans, part of the proceeds from PMGKY would be used for the benefit of the poor.