Government has launched the Pradhan Mantri Garib Kalyan Yojana to provide a virtual amnesty to people having unaccounted wealth by paying a tax of 50%. Besides, declarant must make mandatory deposit of 25% of undisclosed income in the zero-interest Pradhan Mantri Garib Kalyan Deposit Scheme, 2016 with lock-in period of 4 years. Government has planned to invest the collected resources in the rural infrastructure.
Pradhan Mantri Garib Kalyan Yojana | Benefits of the scheme
- The lock-in period allows Government to make productive investment in infrastructure which is suffering from resources crunch.
- The collected tax revenue (i.e. 50% tax) can be used to pursue social sector investments to combat poverty, illiteracy and other perils of the society.
- Government can also plan for a health sector reform by making ‘Universal Health’ a ‘Fundamental Right’ as discussed by the specialists from time to time.
- Government has a large fiscal space to maneuver as per its plans for the successive fiscal years.
- People possessing unaccounted wealth are given an avenue to release their illegal possessions in a legal manner. This provides them a lawful method to secure compliance of taxation norms and accommodate themselves in the white economy.
Pradhan Mantri Garib Kalyan Yojana | Rural Development
- It is important to bring the rural India and make it an integral part of the inclusive growth. 2011 census identified 6.4 lakh villages. There is a need for development of roads, electricity, healthcare, education etc. The government has highlighted that it is going to use the 25% deposited money for rural development.
- The government can create IT infrastructure and involve the panchayat raj institutions in developing the framework in villages. 45% of the villages are still not completely electrified. The rural India has Kachha roads which are not able to connect the villages to rest of the part of India especially in the rainy season. The development of roads and infrastructure would allow for better transport, better logistics and better food management.
- The Pradhan mantri Swarozgar Yojana and Pradhanmantri Gram Sadak Yojana are at a compound growth rate of about 5.4%. In the previous two budgets the government focused on rural development. Rural development is going to bring the requisite economic growth in the country which will then connect and empower citizens.
- When rural India is connected with the urban India, the advancements in education, health care, IT infrastructure and banking system would be more reachable.
Pradhan Mantri Garib Kalyan Yojana | Steps by the Government to tackle Black Money
- Even after the demonetization, there are so many activities going on in the form of money laundering where people would deposit money in other’s bank account. So the government gave opportunity for people to declare their incomes and become part of the progressive India which can contribute for rural development.
- People have started hoarding of new currency. It has not been able to completely do away with the black money which was being generated and hoarded. Government is providing a window of opportunity to the perpetrators to come clean on the issue.
- A couple of European countries have come out with similar kind of scheme with 30 to 35% of tax whose results are yet to be seen.
- The tax penalties are not very high because generation of black income is a crime so the hoarders of black money should make use of this opportunity.
- Increased tax rates in the beginning (as high as 98%) led to the accumulation of black money in the economy. This resulted in the creation of black money.
- Lesser tax rates, easier compliance and facilitation does not cost to be a part of the white economic system. It is advisable to keep the tax rates minimum to encourage compliance.
Pradhan Mantri Garib Kalyan Yojana | Challenges
- People should not be incentivized with such amnesty schemes because they create an avenue for people to disclose their black incomes. Government would end up losing the deterrence against the black money in future.
- The highest tax bracket is 30% and the penalty the government has put is 50%. So the penalty is not very high and this penalty should not dissuade the honest tax payers from making those payments.
- It is yet to be seen what Government plans to do with the accumulated revenue by this scheme. If the motive is to disburse the resources to push growth in the economy, then it would be a welcome move. Otherwise, it may end up pushing inflation alone.