Question- Critically
analyse the impact of recent amendments to the Liberalised Remittance Scheme on
foreign transactions. Discuss the implications on tax evasion, money laundering
and compliance burden for issuing banks in India.
(15 Marks)
Introduction
The
Liberalised Remittance Scheme (LRS), introduced by the Reserve Bank of India,
allows resident individuals to remit a certain amount of money during a
financial year to another country for investment and expenditure. The recent
amendments to the LRS bring international credit card spends outside India
under this scheme and impose a higher rate of Tax Collected at Source (TCS).
The amendments aim to curb tax evasion and money laundering while bringing
parity between the international usage of credit and debit cards.
Demand of
the Question - Impact Analysis
1.
Curbing Tax Evasion and Money Laundering: By bringing international credit
card spends under the LRS, the amendment aids in tracing high-value
transactions, thereby potentially reducing tax evasion and money laundering. As
more transactions come under scrutiny, the space for unaccounted foreign
transactions shrinks, fortifying the system against illicit fund flows.
2.
Increased Compliance Burden: While the amendment adds a layer of transparency, it also
increases the compliance burden for banks. Banks are now tasked with the
additional responsibility of collecting and depositing the tax, and maintaining
records of such transactions. The implementation of TCS on credit card spends
abroad may increase operational complexities and costs for banks.
3.
Parity Between International Usage of Credit and Debit Cards: Previously, international debit
card transactions were under the purview of the LRS, but credit card
transactions were not. The amendment brings in parity, making the policy
uniform for both types of cards, thereby avoiding any potential misuse of the
differential treatment.
Way
Forward
To maximize
the benefits and minimize the challenges posed by the amendment, certain steps
can be taken:
1.
Ease Compliance:
Regulators can provide clear and detailed guidelines to banks about the
processes involved in the implementation of the new rules, easing their
compliance burden. Automation of processes may help in reducing operational
complexities and errors.
2.
Awareness Among Users: Widespread awareness should be spread among credit card users regarding
the new rules and their implications, so that they can plan their international
spends accordingly.
3.
Robust Monitoring System: A strong and efficient monitoring and reporting system
needs to be put in place to track transactions and identify any anomalies. This
will aid in achieving the objective of curbing tax evasion and money
laundering.
In
conclusion, the amendment to the LRS is a progressive move that can enhance
transparency and accountability in foreign transactions. With adequate support
to banks and informed users, the challenges can be effectively managed.
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