The Weekend Triple Whammy for Businesses

It's Monday, May 22 and I'm Govindraj Ethiraj with The Core Report, coming to you from Mumbai, India's financial capital and most rocking city in the world.

I usually have two quick reports - a theme of the day and a Hmm section. But today, I am going to focus on three economic developments and announcements and draw some linkages and conclusions. I also speak to tax expert Girish Vanvari along the way. And a quick Hmm section on why you should buy gold now.

Three things happened.
First, the Government said all Indians would have to pay a 20% tax for overseas credit card spending. This tax would be refunded at the end fo the year or adjusted with dues if any.

Then, it said it was withdrawing the Rs 2,000 note introduced after the demonetisation of Rs 500 and Rs 1000 notes in November 2016.

And finally, a new set of guidelines for startup investors, or angel tax guidelines, something that not only refuses to go away but only gets complicated with every subsequent announcement of relief.

These three steps are connected and not in a very good way and do stay with me till the end and I will tell you why.

Let's come back to the first one.

The Government has said all Indians have to pay a 20% tax collected at source for all international travel expenses. This tax would subsequently be netted off against your annual tax dues if any, or refunded. It's the kind of regulatory announcement that sends a chill down your spine not because of what it is but what it portends.

Anyway, the notification was subsequently revised to say all expenses above Rs 7 lakh in a year. And the larger context was pointed out, which is that Indians who are allowed to remit $250,000 a year for acquiring assets or almost Rs 2 crore annually are misusing it. Remember, for you to have Rs 2 crore of disposable income in a household per year, you are pretty well-to-do.

Going by Reserve Bank figures, Indians are sending approximately $2.2 billion every month or around $26 billion. Of this, around $1.1 billion a month was spent on overseas travel, or approximately around $13 billion this year. It does not seem like a figure that should frighten us into a corner. But the Government's argument is that payments made through credit cards were falling outside the Liberalised Remittance Scheme limits and thus not reflected or recorded appropriately. The credit card figure itself I was not able to procure but it seems like a fraction of total outflows.

India's chief economic advisor to the finance minister V Anantha Nageswaran wrote a detailed piece defending the Government's actions on Saturday but did not delineate credit card spending in his argument, at least that I could see.