New Delhi, November 8: On the second anniversary of demonetisation, Union Finance Minister Arun Jaitley defended the radical exercise and said it digitise transaction and resulted in higher tax collections. In a Facebook post, Arun Jaitley said confiscation of currency was not an objective of demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective, he said.
Jaitley said demonetisation was a pivotal step to formalise the economy and it helped the government unearth unaccounted cash. "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 wrote. "Larger deposits in banks improved lending capacity for the banks," he added. Demonetisation Anniversary: Scars of 'Ill-Fated' & 'Ill-Thought-Out' Notebandi is Getting More Visible With Time, Says Manmohan Singh.
Jaitley said direct and indirect tax collections went up post demonetisation. "From two years prior to Demonetisation, direct tax collections have increased 6.6% and 9% respectively. In the next two years, post Demonetisation the increase by 14.6% (part of the year before impact of Demonetisation in 2016-17) and an increase of 18% in the year 2017-18," he stated. The minister added the tax returns filed reached 6.86 crore in 2017-18, an increase of 25 per cent over the previous year. Demonetisation Fallout: Unemployment Rate Rises, Labour Participation Fell, Says CMIE Study.
"In 2014-15, the indirect tax to GDP ratio was 4.4%. Post-GST it has climbed up by at least 1 percentage point to 5.4%. Despite an annual income tax relief of Rs. 97,000 Crore given to the smaller tax payers and a Rs. 80,000 Crore relief given to the GST assesses, tax collections have gone up," Jaitley wrote. He also said the launch of the Unified Payment Interface (UPI) and the Bharat Interface for Money (BHIM) app increased the number of digital transactions.
Reacting to criticism, Jaitley said the critics are ill-informed. "An ill-informed criticism of the Demonetisation is that almost the entire cash money got deposited in the banks....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," he said.
On November 8, 2017, Prime Minister Narendra Modi-led government demonetised inactive Rs 500 and Rs 1000 notes, which accounted over 86 per cent of the total Rs 16.24 trillion value of banknotes in circulation as of March 2016.