It has been over two months since the government invalidated high-denomination currency notes, but the costs and benefits of the move are still being debated fiercely. When it comes to benefits, assessing the real gains in terms of what was originally the currency reform’s primary goal—attacking the existing stock of black money stored in cash—will be a tricky process. And the burden of it will fall on a tax administration. At the operational level, the tax department will now have to mine a vast volume of data to zero in on accounts that have been used to deposit unaccounted cash. This will not be easy as it will substantially increase the workload and can lead to litigation. Further, the department will have to handle the entire exercise with care and avoid causing discomfort to honest taxpayers. Thus, even as the government looks to bring more people into the tax net on the basis of the information generated in the last two months, it would do well to also work on a medium-term strategy to enhance the capability of the tax administration. Going forward, big data analytics will become increasingly important—using data generated by the consumption patterns of individuals to identify tax evasion, for instance. The government will simultaneously need to work on laws and regulations to reduce the generation of black money in the system.

(Live Mint)