Higher tax mop-up points to success of note ban: Jaitley
Slams ‘misconceived criticism’ of move, claims objective was to formalise economy
On the second anniversary of demonetisation, Finance Minister Arun Jaitley once again emphasised that the exercise was not intended for confiscation of currency, but to get it into the formal system. And one measure of its success was that over 86 lakh new income-tax filers were added this year alone, he noted.
On November 8, 2016, Prime Minister Narendra Modi had announced the withdrawal of ₹500 and ₹1,000 currency notes from circulation. The total value of these notes as on November 8, 2016, the day before the note ban, was ₹15,417.93 lakh crore. The total value of such notes returned to the treasury was ₹15,310.73 lakh crore. The note ban has been widely criticised and the Opposition has branded the move a failure.
However, in a blog post on Thursday, Jaitley dismissed this criticism as a “misconceived” argument. “An ill-informed criticism of demonetisation is that almost the entire cash money got deposited in the banks. Confiscation of currency was not an objective of demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective. The system required to be shaken in order to make India move from cash to digital transactions,” he wrote.
He said that direct tax collections (till October 31, 2018) rose 20.2 per cent; more specifically, corporate tax collections grew 19.5 per cent. “Two years prior to demonetisation, direct tax collections increased 6.6 per cent and 9 per cent, respectively. In the next two years, post demonetisation, the increase was 14.6 per cent (part of the year before the impact of demonetisation in 2016-17) and an increase of 18 per cent in 2017-18.’’
Similarly, in 2017-18, 6.86 crore tax returns were filed, an increase of 25 per cent over the previous year. This year, as on October 31, already 5.99 crore returns have been filed, 54.33 per cent more than in the previous year.
In May 2014, the number of I-T return filers was 3.8 crore. In the four years since, it has increased to 6.86 crore. By next year, he hoped, “we will be close to doubling the assessee base.”
Rise in taxpayer base
Jaitley said the formalisation of the economy had led to an increase in taxpayer base from 6.4 million in the pre-GST regime to 12 million after. The consumption of goods and services being recorded as part of the tax net has increased. This has given buoyancy to indirect tax growth, benefiting both the Centre and the States, he added.
The fact that assessees have to now declare their business turnover not only has an impact on indirect tax calculation, but also ensures that income-tax arising out of them is disclosed. In 2014-15, the indirect tax to GDP ratio was 4.4 per cent. Post-GST, it has climbed up to 5.4 per cent.
“Despite an annual income tax relief of ₹97,000 crore given to smaller tax payers and an ₹80,000crore relief given to GST assessees, tax collections have gone up. Rates of taxes, both direct and indirect, have been reduced, but tax collections have gone up. The tax base has been expanded,” he said.