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Demonetisation Credited As India's Direct Tax Collections Rise 19.1%

Discussion in 'World Economy' started by Som Thomas, Aug 15, 2017.

  1. Som Thomas

    Som Thomas 2nd Lieutant FULL MEMBER

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    Demonetisation Credited As India's Direct Tax Collections Rise 19.1%
    Aug 10, 2017 @ 03:30 AM
    There really are some things which need to be done and which only government can do--the arguments are always about how many of them, not the existence of the basic concept. Thus we need to have tax revenue in order to pay for that government to do those necessary things. Historically India hasn't been very good at this process but it is indeed getting much better at it. Thus we get the news that direct tax collections (income and corporate profits taxes) have risen 19.1% in the latest reporting period:

    The government’s direct tax collections grew 19.1 per cent in April-July, the first four months of this financial year, to Rs 1.90 lakh crore. The direct taxes collected during these four months account for 19.5 per cent of the total budget estimate of direct taxes for the financial year 2017-18, the Central Board of Direct Taxes (CBDT) said in a statement.

    As we noted yesterday there's been a significant rise in the number of tax filings as well:

    Dependent upon your views of the benefits or perils of taxation you can claim that demonetisation is to be blamed or lauded for a 24% rise in tax returns being filed in India this year. Although of course it's not just simply demonetisation, it's the whole parcel of changes and pursuits of tax scofflaws which is responsible. Given how much of India's economy is over there in the informal sector this is a good result though, we should be lauding this.

    As there, here with the rise in collections, we are indeed saying that demonetisation is at least part of it:

    "This clearly shows that a substantial number of new tax payers have been brought into the tax net subsequent to demonetisation," the Central Board of Direct Taxes (CBDT) had said in a statement.

    Yet note the care with which that is phrased. It is not demonetisation alone, it's that entire process as I said yesterday. Changing the notes triggered things, but subsequent analysis of cash transactions in and out of bank accounts matters. The agreement on gaining access to the Swiss bank information matters. Yes, I know, that doesn't come into effect quite yet but informal information (what we might properly call "gossip") from tax planning professionals says that there are quite some number of Indians beginning to organise their affairs properly. From a near blissful ignorance of, ignoring of, the tax system to beginning to set up proper tax avoidance structures. Avoidance not being as successful at reducing tax bills as simply not taking part in the taxation enterprise at all.

    Direct tax receipts in the first four months of the current financial year shot up 19.1% year-on-year, data showed on Wednesday, boosted by the government's demonetisation drive, which has led to widening of the tax base.

    Again as I mentioned yesterday this isn't all about demonetisation nor the more general crackdown. All tax systems are skewed toward taking more of the marginal production in an economy. You only pay tax above a certain income, rates rise as income does and so on. Therefore the marginal tax take will be higher than the average one. In an economy growing at 6 and 7% then direct tax revenue, absent any major changes in the tax system or rates, should be growing faster than that 6 or 7%. Exactly how much faster is unknown, possibly unknowable, but a reasonable estimate (more accurately known as a "guess") would be 6% growth should produce 9 or 10% rises in revenue.

    Demonetisation and the whole general tax crackdown will have contributed to this 19% rise in direct tax revenue but it's not the only cause, economic growth itself will be playing its part.


    https://www.forbes.com/sites/timwor...irect-tax-collections-rise-19-1/#460eb3f0635c
     
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  2. Hellfire

    Hellfire Devil's Advocate Staff Member MODERATOR

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    True. The system has to work, no singular act can achieve results. A few members here raised doubts as to the exercise and it's objectives, but as far as I could make out while interacting with the key players during the conduct of the whole exercise (Nov 2016 onwards) majority of the people concerned (from RBI) and those who were 'drafted' in for implementation, cutting across political leanings, called it an excellent exercise.
     
  3. anant_s

    anant_s Encyclopedia Technical Analyst

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    A lot of experts have commented that Demonetization was failure but it has brought more people in tax bracket and that shall remain single biggest success of the exercise
     
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  4. vstol jockey

    vstol jockey Colonel MILITARY STRATEGIST

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    It exposed shell companies and closed one of the ways of converting black money to white coupled with Benami Properties act. This act was passed in 1988 but it was never promulgated.
     
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  5. Som Thomas

    Som Thomas 2nd Lieutant FULL MEMBER

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    The main point highlighted here is.
     
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  6. Satendra kumar

    Satendra kumar FULL MEMBER

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    Demonetisation did change India's banking regulation,taxation,governance above all corruption in day to day business activities.Implementing new laws for all these criminal activities will benefit entire indian communities.
     
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  7. Pundrick

    Pundrick Lieutenant FULL MEMBER

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    The so called long term perspective for carrying out demonetization was increasing "tax base" which was very low before this FY.

    The short term benefits are identifying Shell companies, Corrupt businessmen & babus, Money Laundering network, etc. But RBI and Govt had to pay a huge cost to execute it, plus silently RBI has done something which otherwise could have been considered as anti-people i.e. recapitalization of public banks from consolidated fund.

    MSS was one of the tools which was very useful in curbing the excessive liquidity in the market and in turn provided the bank with some interest income which they required very badly, costing the exchequer 10-12k crore. But it is still very small amount I hope the banks will now take extra care while lending money from now onwards.
     
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