Why it makes sense to go Cashless - 1

It makes sense to go cashless in India. Apart from the other advantages like reduced corruption, comfort, less trouble etc it offers a huge opportunity for the economic growth.

India is suffering from the problem of low Tax collection due to high tax rates on a lower tax base. Government needs to reverse this in order to improve the tax collection. We all must work together to widen the tax net by bringing more people in the direct tax coverage, plug the tax leakages and bring discipline in government spending.

This can be achieved via going cashless. How?

Let's understand this with an example. When a person constructs a house say at a cost of Rs. 1,00,00,000 (Rs. 10 million), most of the payments he makes via cash, especially in tier 2, 3 and 4 cities, if not metros. Out of this Rs. 10 million approx 25-30% goes for labour payment, which is generally paid in cash due to obvious reason. But rest of the 70-75% can easily be paid by banking system (or in cashless mode). If this is done, it will help us bring more people in tax net and reduce tax rates.

But the problem is when you want to make check or online payment for Bricks, Cement, Iron, Hardware, Paint, Stone Chips or Sand the supplier is not ready to accept payment. Because the supplier doesn't want to pay taxes and in turn he corrupts you as well. The result is all are suffering from the problem of high tax rates and tax evasion.

The persons selling bricks, stone chips, sand don't pay a single Rupee in Indirect Taxes as there is no billing, everything goes in CASH. They don't pay a single Rupee in Income Tax on their incomes from these Business, because they don't show any income from it, as there are no documents to prove that they have earned these incomes.

The transporter who brings bricks, stone chips, sand etc to your place also gets his payment in CASH. He also doesn't pay the Service Tax and later on doesn't pay any Income Tax as there is no income on papers. Every year or so he purchases another vehicle to transport more goods. But on papers he hasn't got any income.

The suppliers of Cement, Iron rods, Hardware Material, Plywood, Paint, Electrical Accessories etc are in some cases ready to accept payment via check / bank but will lure you by giving discount on MRP if paid in cash and no bill is taken. The discount can be as high as 15-20% of MRP - which is generally the VAT rate. You get tempted and pay in cash. This helps them tax evasion. Because of our ignorance we get into this trap. All these items are sold in the market with a very high mark up MRP. The dealer margin on these items could be as high as 40-50% of MRP. Secondly, all the materials sold within a state, the VAT is chargeable only on the Value Added Part or the Profit of the supplier, which we don't know, because if the vendor has purchased the material from a proper supplier / wholesaler the will issue him VAT invoice and collect tax from him on the billed amount.

So we get into trap and pay cash. And this cycle continues. Your hard earned white money get converted in Black money after every such transactions. If all of us start insisting on payment via Check / Bank / Card / Online and take bills for things purchased, in just one year we can witness the change.