True impact of invalidating high-value currency has increased tax base: FM

He said the ban on Rs 500 and Rs 1,000 along with the goods and services tax had expanded the tax base

Finance Minister (FM) Arun Jaitley on Thursday used tax numbers to counter Opposition criticism that demonetisation had failed in its objective to curb black money only because almost all of the invalidated currency had come back to the Reserve Bank of India (RBI).

He said the ban on Rs 500 and Rs 1,000, which the government had announced on November 8, 2016, along with the goods and services tax (GST), rolled out on June 1 last year, had expanded the tax base. As a result, tax collection had also increased. “This is a trend that will continue this financial year (2018-19 or FY19) as well,” he said.

On Wednesday, the RBI had said in its annual report that 99.3 per cent of the banned notes were back in the system. Opposition leaders had questions that if this was true where did all the black money, which the government had claimed was held in cash, go.

The FM, on his Facebook page, also said 1.8 million depositors have been identified for inquiry to assess whether the amount deposited by them was in consonance with theirs. Many of them might face tax and penalties, he said. “Mere deposit of cash in a bank does not lead to a presumption that it is tax-paid money,” Jaitley said.

He also said, “Was the invalidation of the non-deposited currency the only objective of demonetisation?  Certainly not.” He added that the larger purpose of the note ban was to move India from a tax non-compliant society to a compliant one.

“This necessarily involved the formalisation of the economy and a blow to black money,” Jaitley said.  

He reiterated that advance tax in the first quarter of FY19 has increased 44.1 per cent for personal income tax (I-T), and 17.4 per cent for corporation tax. Growth in I-T collections in the two years before demonetisation was 6.6 per cent and 9 per cent, respectively.

He said the number of new returns filed after demonetisation increased in the past two years by 8.5 million and 10.07 million, respectively.

The I-T collections have increased from the 2013-14 figure of Rs 6.38 trillion to the FY18 figure of Rs 10.02 trillion, he said.

In the very first year since the GST roll-out, the number of registered assessees has increased by 72.5 per cent.  The original 6.61 million assessees has increased to 11.4 million.

“This is the positive impact of the demonetisation,” Jaitley said. He added, “More formalisation of the economy, more money in the system, higher tax revenue, higher expenditure, higher growth after the first two quarters.”