Demonetization formalised economy, made holders pay tax: FM Arun Jaitley

Union Finance Minister Arun Jaitley said on Thursday that confiscation of currency was not the only objective of demonetization.

It was meant to get the money into the formal economy and the broader objective was to make the holders pay tax, he said on the second anniversary of demonetization.

In an indirect rebuttal of the Opposition's criticism that over 99% cash returned to the economy and that the demonetization did not achieve any purpose, Jaitley in his Facebook blog titled 'Impact of demonetization' said an ill-informed criticism of the demonetization is that almost the entire cash money got deposited in the banks, referring to Reserve Bank of India's (RBI's) report saying that 99.3% of the banned currency came back. "The system required to be shaken in order to make India move from cash to digital transactions.

"This would obviously have an impact on higher tax revenue and a higher tax base."

Jaitley described it as a key step in a chain of important decisions taken by the government to formalise the economy.

Talking about the action taken by the government to bring black money back into the country, Jaitley said it first targeted the black money outside India. "Asset holders were asked to bring this money back on payment of penal tax. Those who failed to do so are being prosecuted under the Black Money Act. Details of all accounts and assets abroad which have reached the government resulted in action against the violators," he said.

Jaitley said the demonetization has resulted in expanding the tax base. With this and the Goods and Service Tax (GST), "it is now becoming increasingly difficult to evade the tax system".

Jaitley also said demonetization compelled holders of cash to deposit the same in the banks.

"The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method. The violators faced punitive actions. Larger deposits in banks improved lending capacity for the banks. A lot of this money was diverted to the mutual funds for further investments. It became a part of the formal system," he said.

Digital transactions, including Unified Payment Interface (UPI), Bharat Interface for Money (BHIM) and Rupay have increased manifold in the country which was a cash-dominated economy. Jaitley said that cash involves anonymity in transactions as it bypasses the banking system and enables its possessors to evade tax.

"Today Visa and Mastercard are losing market share in India to indigenously developed payment system of UPI, and Rupay card whose share have reached 65% of the payments done through debit and credit cards," he said.

demonetization has led an increase in collection of personal income tax. "Its collections were higher in the financial year 2018-19 compared to the previous year by 20.2%, while corporate tax collections went up 19.5%."

Similarly, in the year 2017-18, the tax returns filed reached 6.86 crore, an increase of 25% over the previous year.

The new filers have increased to 6.86 crore in the first four years from 3.8 crore when the present government was elected. Formalisation of the economy has led to the taxpayer base increase from 6.4 million in the pre-GST regime to 12 million taxpayers in the post-GST regime.

More formalisation, more revenue, more resources for the poor, better Infrastructure, and a better quality of life for our citizens, Jaitley said.