Taxman nabs several jewellers laundering black money, but this has to be measured by big step-up in tax revenues
It was always disappointing that, after coming out with an initial list of 17.9 lakh persons whose post-demonetisation cash deposits in banks were not in keeping with their tax profile—an amount of Rs 1.75 lakh crore of suspicious deposits was also spoken of, albeit separately—the government didn’t seem to have achieved much in terms of getting more people to pay taxes. Indeed, the fact that the taxman drew up a list of 60,000 persons for detailed investigations after it got replies from the initial list of 1.75 lakh persons who were asked to respond to queries also suggested that the back-stories created by chartered accountants and lawyers were holding up. So, while those who were supposed to get caught in the post-DeMo investigations should have ended up forfeiting a very large share of their black money, tax collections didn’t rise as much. While personal income tax collections rose by 21-22% in FY17 (DeMo year) and FY18, FY19 growth fell to a mere 9.9% and Apr-Nov growth this year was just 7%.
In this context, some of the recent stories emanating from the tax investigations are heartening. In one case from Gujarat, while the jeweller deposited just Rs 44,260 of cash in his bank account in November-December 2015, this rose to as much as Rs 4.1 crore in the post-DeMo months of November-December 2016. Another jeweller deposited Rs 3.2 crore of cash in his bank account while declaring an annual income of less than Rs 11 lakh; yet another reported a huge spurt in cash-in-hand from Rs 2.6 lakh in November 2015 to Rs 6.2 crore in November 2016. While the jewellers told the taxman that the spurt in cash was due to customer advances or sales, another favoured modus operandi was to show a large number of small advances (of below Rs 20,000 each) around demonetisation time and then ‘returning’ it to the people who gave the advance! One jeweller, who declared an annual income of just Rs 26 lakh, claimed he received Rs 9.7 crore as cash advances from 573 persons, but could provide no details of their addresses or phone numbers; the total electricity bill for the year for this jeweller was a mere Rs 1,474!
Impressive as the investigations are, the proof of their working is whether there is a significant and sustained increase in the tax-to-GDP ratio. After all, during this period, there was a substantial jump in the number of taxpayers filing GST returns; when traders and firms are forced to file their genuine turnover due to GST, chances are they have to file correct income tax returns as well. Also, there has been a sharp increase in the pace of digitisation since demonetisation; from 6.5% of GDP in FY16, digital transactions—UPI, NEFT, IMPS and debit/credit cards at PoS—rose to as much as 15.6% in FY19 and, logically, this too should have contributed to tax compliance. Some part of the sluggishness, it is obvious, is due to a slowing economy, but if compliance levels have genuinely gone up, there should be an added boost in collections when the economy picks up.