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Demonetisation, GST to make society tax compliant: Jaitley

Terming disruption caused by demonetisation as transient, Finance Minister Arun Jaitley on Wednesday said the move together with GST rollout will boost the Indian economy and make the “substantially” non tax-compliant society more compliant.

Speaking at the Vibrant Gujarat Global Summit, he said the scrapping of high-value notes was a move to end the shadow economy.

To that end, he said, the government also renegotiated tax treaties with Mauritius, Cyprus and Singapore to end tax evasion and round tripping of funds.

“Obviously difficult decisions initially pass through difficult phases. Historic decisions which can have long term advantages for the country also have transient pains attached to them. But then in the medium and long term, they are going to change the roadmap on which the country is destined to move,” he said.

Prime Minister Narendra Modi had on November 8 announced the junking of old Rs 500 and Rs 1000 notes in the biggest step to fight black money, terror funding, corruption and counterfeit currency. Jaitley said that while India aspires to evolve from a developing country to a developed nation and an economy that is making an impact globally with fastest growth rate, “we are substantially, in terms of taxation, a non-complaint society”.

The steps taken are going to be significant “because we are going to change the pattern in which India and Indians are going to live and spend in future. It is going to have an impact on the course of our present and future lives”.

Stating that the impact of demonetisation cannot be delinked from this, he said excessive paper currency has its own vices and temptation including corruption.

“When we release data, we then realise the narrowness of tax base. And once this entire bearer currency, which has anonymity and no history, moves back into banking system and is accompanied by digitised economy -it is going to be a major step towards an integration of informal economy which at times also was a shadow economy, with a more formal economy,” he said.

This together with the impeding rollout of the Goods and Services Tax (GST) “is going to increase transaction which was covered in the taxation system, transactions which can lead to higher revenues in future, greater compliance and give us a cleaner and better economy”, he added. 

The larger, cleaner and better tax compliant economy will happen “after the transient impact of this is over (and) once it is coupled with the historic implementation of the GST”, Jaitley said.

Currently, the indirect taxation regime provides for central government taxing manufacturing and services while states levy tax on sale of commodities.

“And you are assessed by different authorities,” he said, adding that GST will make India one big entity with a single tax that will allow seamless transfer of goods and services across the country.

“It is advantageous to the assessee as there is no cascading of tax,” he said.
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