Whether or not, or by how much, the demonetisation of Rs 500-1000 notes impacted the GDP growth, will take time to emerge.
The 7% GDP growth during October-December period may or may not remain at that level in further revisions, and this should not be seen as a success of demonetisation, which is yet to deliver any considerable gain in terms of tax or a major shift to digital transactions. The government has to work hard to ensure this.
Whether or not, or by how much, the demonetisation of Rs 500-1000 notes impacted the GDP growth, will take time to emerge, but it is now an established fact that the government needs to engage itself in a sustained exercise to maximise the gains to whatever extent possible, in terms of collecting additional tax or promoting the digital economy.
While the overall digital transaction is around the pre-demonetisation levels after witnessing a jump in December and January; not surprisingly, the disclosures made through the Pradhan Mantri Garib Kalyan Yojana (PMGKY), called the Income Declaration Scheme II (IDS-II), are also nowhere near the expectations.
According to a Business Standard report, the PMGKY declarations totaled Rs 2,500 crore till February end—the scheme was announced on December 17 to provide a final option to the black money holders to come clean on deposits of the old Rs 500-1000 notes by March 31, and pay 50% tax on the declared amount, while keeping 25% in an interest-free deposit for four years.
That only Rs 2,500 has been declared with less than one month to go—against the target of Rs 1.5 lakh crore to collect Rs 75,000 crore tax—tells its own story. Black money schemes are not only bad in intent, have also failed to deliver much.
The one-time compliance window of three months for declaring the undisclosed foreign assets saw just 648 taxpayers filing declarations leading to disclosure of Rs 4,164 crore up to September 30, 2015, when the scheme closed.
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And after heightened efforts of the Central Board of Direct Taxes, the IDS-I, which targeted domestic black money, which closed on September 30, 2016, could ensure 71,726 declarations with an aggregate of Rs 67,382 crore un-declared income in cash and other assets.
With an impression that the government and investigative machinery failed to rise to the task in curtailing the possibilities of black money kept in Rs 500-1000 notes entering the system, it is natural that the income tax department is now pushing hard to improve the results of IDS-II, by targeting 1.8 million individuals who deposited Rs 4.5 lakh crore during demonetisation, which don’t match their tax profiles.
Even though this is going to be a tedious and cumbersome task, the success of the income tax department in identifying and collecting legitimate tax due from all those who have deposited a large amount of old Rs 500-1000 notes will be an indicator of whether it is capable to making any serious dent into tax evasion.
On its part, however, the government must put an end to the black money schemes here, and look at ways to reduce the income tax burden on the people for encouraging voluntary compliance—till the top 30% tax rate kicks in too early at an annual income of Rs 10 lakh and a plethora of exemptions stay, tax evasion and the creation of black money will continue unabated.