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LATEST NEWS UPDATES | What demonetisation did to tax collections -Aarati Krishnan

What demonetisation did to tax collections -Aarati Krishnan

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published Published on Apr 18, 2018   modified Modified on Apr 18, 2018
-The Hindu

It has sharply lifted tax buoyancy and ushered many new return filers into the income tax net

The argument about whether demonetisation was good or bad for the economy refuses to die down even a year after the event. Former RBI Governor Raghuram Rajan took potshots at it in a recent speech.

While one can endlessly debate, with very little data, on whether the ban on high-value currency notes dealt a body blow to terrorism, corruption and counterfeiting, one area in which its impact can be quantified with data is tax compliance.

In the last sixteen months, there has been a lot of premature analysis on India’s tax compliance metrics based on sporadic data points cited by the Finance Minister and tax officials. But with the deadline for FY17 return filings ending on March 31, official data on direct tax collections for FY17 and FY18 is available. This makes an objective analysis possible on what demonetisation did to India’s tax base. The news is mostly good.

Better collections

India managed a second consecutive year of strong growth in its direct tax collections in FY18. Net collections (gross mop ups minus refunds) increased by 17.1% in the just concluded fiscal year, to ?9.95 lakh crore.

This was after a 14.6% increase in the mop ups in FY17. It should be noted that income tax rates have largely stayed put in the last couple of years, with only minor increases in the surcharge and cess components.

Now, compared with the first two years of the NDA rule, the last two years’ numbers are very healthy. In FY15 and FY16, India’s direct tax kitty witnessed growth of just 8.9% and 6.9%.

But seen from a historical perspective, a 14% or even 17% annual increase in direct taxes isn’t extraordinary for the Indian economy.

For instance, in fiscal year FY14 (under the UPA government), direct tax collections rose 14.3%. In FY11, they had expanded 18%. Clearly, these numbers were achieved without any tinkering with high-value currency notes.

So how would we know if direct tax collections have really revved up post-demonetisation?

Please click here to read more.

The Hindu, 15 April, 2018, http://www.thehindu.com/business/what-demonetisation-did-to-tax-collections/article23550004.ece


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