Taxes will be made “more reasonable” in cashless India – Jaitley

Taxes in India will be made more reasonable as more and more transactions switch to the cashless mode, finance minister Arun Jaitley said.

“As more and more transactions are made cashless, they will come under taxation.. (and with this) taxes will be made more reasonable, both direct and indirect,” Jaitley said today.

The finance minister was giving out a message aimed at the opposition parties, which have blocked Parliament for a month over the withdrawal of high-value currency notes.

The statement is also the first concrete indicator that the government intends to cut taxes going forward, given the lower level of ‘black money’ expected.

It is estimated that only around 30% of the levies that the central and state governments are entitled to actually reach them due to the use of cash to carry out big and small transactions.

To compensate for the evasion, the tax rates are kept at a higher level, especially on commercial transactions. Value Added Tax, for example, ranges from about 4% to almost 15%, while direct (or income) taxes can be as high as 30%.

However, nearly 98% of Indians do not pay any income tax, and merchants regularly declare 10% or less of their real turnover in order to escape paying indirect levies such as VAT and service tax.

The government is pushing its citizens to adopt cashless transactions as a way of increasing transparency in the economy.

Many ordinary businessmen have argued that if they are to comply 100% with the tax regime, prices of commodities will go up significantly.