Economy

11 Things Finance Minister Arun Jaitley Said Formalisation Has Done For The Indian Economy, On Demonetisation's Second Anniversary

Written By Ankit Prasad | Mumbai | Published:

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  • FM Arun Jaitley explains the manifold effects of Demonetisation, and the larger topic of formalisation, on the economy

On the occasion of second anniversary of Demonetisation, Finance Minister Arun Jaitley gave a press conference about the impacts of the move, even as the Congress protested hard, with former Prime Minister Dr Manmohan Singh calling it ill-fated and ill-thought. Here are the most notable aspects of what Arun Jaitley said:

WHY DEMONETISATION: Why was it required? It was required because high-value currency occupied almost 86% of India's cash currency. India was a predominantly a cash dominant economy. And a cash-dominated economy suffers from many challenges.

ON THE CHALLENGES OF CASH: Cash has anonymity, its owner is not known. Therefore, it prevents a formalisation of the Indian economy.

Cash evades taxes, the result of which was that india's taxation base both in direct and indirect taxes was very narrow.

Cash goes directly opposite to the global trend of digitisation of financial transactions so transaction takes place outside the banking system and it is a cumbersome process to handle it. It encourages black money.

DECREASE IN TAX BURDEN: Over the last several decades, from a very high direct tax rate, India's taxation rate has been brought down. When this Government took over the total number of persons filing income tax returns in a country of 130 crores was only 3.8 crores, so if we approximate to about 25 or 27 crore families in India, only 3.8 crores were filing returns and not all were paying taxes as some were filing returns and still not paying taxes. Same was the position with regard to the indirect taxes, and therefore, the taxpayer had to pay not only his own taxes but also in order to run the system of Governance also pay the share of the evaders. 

DEMONETISATION NOT THE FIRST MOVE AGAINST BLACK MONEY: The first step we had taken was we gave the opportunity to people who had money abroad to bring them back on payment of penal tax, we enacted the black money law, we started prosecuting names of people with accounts abroad that was known to us and started making assessments against them.

Thereafter, we had a drive for people to declare whatever was the undeclared income that they had, and therefore on payment of higher tax they could legitimise it, this was trying to encourage people to get into the tax system.

J-A-M FURTHERED FORMALISATION: Only 58% of Indians had a bank account. So our Jan Dhan scheme enabled almost everyone to have a bank account even if he had no money to deposit. We then put into operation the Aadhaar, and a direct benefit transfer through Aadhaar into these bank accounts. So all governmental support to poor people was done by a direct benefit transfer to the banks. Now, this was entirely a process of formalising the economy and connecting everybody to the banking system, so that the number of transactions which takes place outside which leads to corruption and evasion could be minimised.  

READ: Confiscation Of Currency Wasn't Demonetisation's Objective, Says Finance Minister Arun Jaitley, Hailing The Economic Formalisation That Resulted. Read Here

MAKING TAX EVASION DIFFICULT: We also then used technologies for filing IT returns, getting your assessment orders. 

Today 99.66% of personal income tax returns this year would be assessed as they are filed. Only a minuscule percentage of people will have to go in for scrutiny.

The GST consolidated 17 taxes and made the entire national indirect taxation system into one and it was also software base, so it was an online tax system, so we have made evasions very difficult and brought in more people in the tax system. 

ACTION AGAINST ANONYMITY OF TAX EVADERS: You had an enormous amount of cash currency operating in the system mainly through high-value currency. People were compelled to deposit their money. Our object was not to confiscate their money. But to find out who is keeping an illegitimate, non-tax paid money, deposits in the banks ended the anonymity for the money and its owner got identified. Now whoever made small deposits obviously, the IT department ignored them.

But those who were depositing several lakhs of high values in lakhs and crore, they were identified and close to 18 lakhs such assessees whose deposits were disproportionate to their income were identified and they were sent online notices.

Many responded, some had to take penal actions, their assessments have been done and they have had to account for every rupee, if they don't account for it they had to pay taxes.

READ: Amid Demonetisation Anniversary Politics, BJP Asks Congress 10 Pointed Questions. Read Here

DEPOSITS IN MUTUAL FUNDS INCREASED: Once, money went into the banks immediately the deposits into the mutual funds increased because these were then deposited into the mutual fund.

DEMOCRATISATION OF DIGITISATION: Now what are the results of this, if we look at digitisation people were using only Bank's cards or only international cards like master cards or visa to which many others were affiliated.

Today in India, after the digitisation of the economy post demonetisation and I have today in my blog have given the data, whether its the UPI or Rupay card or its the Bhim app, the transactions have increased many folds. over the next few years we find that a very large part of the younger generation now pre-dominantly wanting to deal through these instruments. 

Now, these instruments which have been created and which have also meant for people with lesser incomes are occupying almost 65% digital space in India they are way ahead of Visa and Master card, which is an indication that not only the wealthy people, but many others are now resorting to digital transactions.

READ: Deeper Ramifications Of Demonetisation Are Still Unraveling, Says Former PM Dr Manmohan Singh, Warning Against 'unorthodox, Short-term' Economic Measures. Read Here

PHENOMENAL TAX-BASE INCREASE: When the present government came to power only 3.8 crore people were filling returns, after four years it is 6.86 crore and at the end of five years it will be close to double and what was increasing in minuscule has increased phenomenally And the real test is, it is increasing in the area of personal taxes and corporate taxes, have only now started increasing in indirect taxes.

Not only has the number of assessees increased in the first year of GST there is an increase of  74%. Therefore if you have to have a formalized and informed debate.

IN SUMMARY: Is the Indian economy increasing? Yes. Are digital transaction increasing yes? Are direct taxes increase? Yes, and every state is getting a mandatory 14% increase every year and we can do it only because taxation base has gone up.

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