Higher mop-up of direct taxes
Demonetisation has thrown up a huge amount of new data that tax departments are extremely enthused about. They claim that the tax base has expanded almost to double since the controversial decision to invalidate two high-value currency notes of Rs 1000 and Rs 500 was taken in 2016. A new report from the Central Board of Direct Taxes (CBDT) claims that the income tax (I-T) department has mopped up over half of the targeted direct tax revenue for the current fiscal. On the "impact of demonetisation", the report states that the 2016 exercise of invalidating the two high-value currencies notes has produced a large amount of data and credible information based on which search and survey are being conducted by the tax department with a great degree of success against tax evaders. The report said that the department has, till November 15, made a gross collection of Rs 6.63 lakh crore from direct taxes in this fiscal, which is 16.4 per cent higher than the gross collections for the corresponding period of last year. The direct taxes revenue collection target for the 2018-19 financial year is Rs 11.5 lakh crore. Now, the tax departments have four months to achieve the target before the close of the fiscal on March 31 next year. The report says there has been a "sustained increase in the number of income tax returns (ITRs) filed in the last four financial years as compared to 3.79 lakh crore ITRs filed in 203-14 fiscal and the number of ITRs filed during 2017-18 fiscal has increased by 81 per cent to 6.87 lakh crore". New ITR filers increased to 1.07 lakh crore during the 2017-18 as compared to 85.51 lakh new ITRs filed during 2016-17 fiscal, a growth of 25 per cent. The high rate of growth in the number of ITRs filed after the demonetisation coupled with better than the targeted level of tax collection suggest that the data churning in the aftermath of highly controversial demonetisation is finally paying off.
The one major benefit that can be attributed to the demonetisation is that it has enlarged the scope of the formal economy. The move ensured that much of the money kept in high-value currency notes reach the banking system. When such a mammoth exercise is undertaken, it creates a huge amount of data in the banking and finance domains. Now, the same data is being used to identify shell companies and tax evaders. The fact that after the demonetisation, more people have opted to file ITRs and a large number of them are first-time ITR filers underlines the fact that the people are now more willingly ready to enter the formal economy. The good news is that the government now has access to a much larger amount of money received through direct taxes. Before demonetisation, there were many myths associated with the Indian economy, one of the most important being the impression that the country is sitting over a large amount of black money hoarded in cash. The demonetisation has proved beyond doubt that this myth was totally wrong and there does not exist black money stored in cash. After the myth was exposed and most of the money in the high-value denomination in circulation returned to the banking system, the government had said that demonetisation was also aimed at converting India into a cashless economy. Though this target was hard to achieve, given the fact that much of the informal economy is run on cash and there was no need to change it overnight, the demonetisation has given the much needed fillip to cashless transaction, which also means that the monetary transactions made through cashless means is actually reaching the banking system, helping banks shore up the deposits and helping I-T officials with the latest data on people's income and savings. The move has also created awareness among the ordinary people about economic issues and planning and the importance of the banking system as far as monetary transactions are concerned. The demonetisation move has turned out to be a great cleansing exercise in which old data about people's income and deposits were replaced by an all-new data bank. This has helped the tax officials and economic planners with new data which is more credible. Though some opposition leaders had voiced concerns over the move that saw more than 85 per cent of the currency driven out of circulation, some of the long-term benefits of demonetisation have begun to manifest themselves within two years of the controversial decision. The pace at which the number of ITRs filed has increased over the past two years shows that the demonetisation has had a positive impact on tax compliance.