Finance Minister Arun Jaitley published a strong defense of demonetization on its second anniversary today as opposition parties targeted the government and even demanded an apology from Prime Minister Narendra Modi. In a Facebook post, he explained PM Modi’s overnight ban on higher currency notes on November 8, 2016, as a “key step in a chain of important decisions taken by the government to formalize the economy”.
Arun Jaitley said in the aftermath of the notes ban, it is now becoming increasingly difficult to run away from the tax system.
“An ill-informed criticism of the demonetization is that almost the whole cash money got deposited in the banks. Confiscation of currency was not an objective of demonetization. Getting it into the formal economy and creating the holders pay tax was the broader objective,” Mr. Jaitley wrote.
“The system needed 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.”
The comment is seen in reference to big criticism of the government after the Reserve Bank of India’s annual report showed that 99.3 percent of the banned cash had returned. Mr. Jaitley said demonetization compelled people to gather cash – which involves anonymity in transactions and enables tax evasion – in 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,” he shared. The violators faced action, bigger deposits helped the lending capacity of banks and a lot of money was diverted to mutual funds, he added.
Digital transactions had increased, he said, adding that Visa and Mastercard were losing market share in India to indigenously development UPI and RuPay card. The instant notes ban also led to a big increase in tax collections, the finance minister said, and the extra resources had been used by the government in infrastructure, social sector, and villages. “In May 2014, when the present government was elected, the total number of the filers of income tax returns was 3.8 crore. In the first four years of this government, it has grown to 6.86 crores. By the time the first five years of this government are over, we will be shut down to doubling the assessee base,” he wrote.
Mr. Jaitley said demonetization, along with GST or Goods and Services Tax, had curbed cash transactions in a big way. “An increase in the digital transactions is visible. This formalization 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.”