Limiting cash payments has to be tried out
Given the share of black money in the economy is large, even though declining, and that a large part of these transactions take place in cash, it is natural the government would want to find ways to deal with this. The finance secretary, for instance, has said that one of the measures being considered is that no one paying a bill of more than R5,000 in a restaurant should be allowed to do so in cash—once the amount is paid by credit or debit card, it automatically leaves a trail for the taxman to follow since bank accounts have PAN card details. At some point, presumably, the same principle needs to be extended to luxury boutiques/shops and showrooms for automobiles, among others. The finance secretary, in fact, has said the government will set up a committee to suggest ways to incentivise credit and debit card transactions. One of them, he said, could be to share the costs of the Point of Sale device; greater spread of the RuPay cards could be another, given their charges are lower. Another suggestion made has been to limit the amount of cash that can be paid while purchasing property. While discouraging the use of cash is a good thing, it is unlikely incentivising the use of credit/debit cards is going to be of much use. A person buying a house or a luxury car, or paying for an expensive meal in a luxury hotel in cash is not doing so to avoid paying the service charge levied by Visa or MasterCard—the idea is to avoid getting caught in the tax net.
It is equally important to recognise that merely mandating some things will not help. There is, for instance, no way of ensuring a limit, of say R50,000, for the cash payment on the purchase of a flat as long as the registration is being done at a lower value than the actual one. The only way to check this is to do other reforms like lowering stamp duties, align circle rates with market values and refuse to recognise power of attorneys as proof of sale. The other, and more sensible, way is to make use of the troves of information the government already collects by way of annual information returns from jewellers, real estate firms, automobile dealers, hotels, property registrars, travel agents and airlines among others. Once a profile is available of large spenders, this needs to be matched with the income tax returns.