Demonetisation will widen tax base, lower interest rate: FinMin to PAC

It is easier to track cash which has returned to banking channels, Revenue Department said

Demonetisation will lead to a wider tax base and lower interest rates, thus paving the way for "sustainable faster economic growth", the Finance Ministry has said.

In a written response to the Parliament's Public Accounts Committee (PAC), the Revenue Department said that due to the withdrawal of old high-value notes, the idle or hidden cash has come into the formal system which will be utilised for productive purposes.

"Targeted verification of suspect substantial deposits is likely to widen and deepen the tax base," it said.

It is easier to track the cash which has returned to banking channels, thus making tax evasion "more difficult", it added.

Further, increased availability of funds with banks and "lowering of interest rates" are expected to enhance credit disbursal, promoting investments in productive economic activities and giving a boost to growth.

The Revenue Department's response was on the impact of demonetisation on economic growth, sources said.

Regarding other implications, it said that increasing use of non-cash modes of transactions will promote transparency and have a lasting positive impact on tax collections, both direct and indirect.

"Along with other measures for increasing transparency and strengthening enforcement, demonetisation will pave the way for sustainable faster economic growth," it said.