New Delhi, January 29, 2018

Analysis shows that new filers reported an average income, in many cases, close to the income-tax threshold of Rs 250,000, limiting the early revenue impact to the Union government

Demonetisation of high-value currency notes and the introduction of the Goods and Services Tax (GST) brought 1.8 million more people into the income-tax net, said the Economic Survey 2017-18 released on Monday.

The Survey’s analysis showed that 10 million new people filed tax returns between November 2016 and November 2017, compared with 6.2 million during the same period in the preceding six years.

 “At first blush, there does seem to have been a substantial increase in the number of new taxpayers,” the Survey said. It said that traditionally, there was a 0.8 per cent monthly increase in new tax filers – representing growth of 10 per cent annually before GST and demonetisation.

“The level of tax filers by November 2017 was 31 per cent greater than what this trend would suggest, a statistically significant difference. This translates roughly into about 1.8 million additional taxpayers due to demonetisation-cum-GST, representing 3 per cent of existing taxpayers,” the Survey added.

Further analysis in the Survey suggested that new filers reported an average income, in many cases, close to the income-tax threshold of Rs 250,000, limiting the early revenue impact to the Union government. “As income growth over time pushes many of the new tax filers over the threshold, the revenue dividends should increase robustly,” it said.

 The Survey, however, noted that GST and demonetisation impacted the informal cash-intensive sectors.

“Demonetisation temporarily reduced demand and hampered production, especially in the informal sector, which transacts mainly in cash. This shock largely faded away by mid-2017, when the cash-GDP ratio stabilised,” the Survey said.

It said that the rural demand, which had not yet reached the pre-demonetisation levels, was recovering.

“But at that point GST was introduced, affecting supply chains, especially those in which small traders (who found it difficult to comply with the paperwork demands) were suppliers of intermediates to larger manufacturing companies,” it added.

The Survey said that the impact of demonetisation and GST on exports is receding with services export and private remittances rebounding.

“On demonetisation specifically, the cash-to-GDP ratio has stabilised, suggesting a return to equilibrium,” according to the Survey. Since June last year, the trend in currency is identical to the pre-demonetisation period, it said.

“The stabilisation also permits estimation of the impact of demonetisation: about Rs 2.8 trillion less cash (1.8 percent of GDP) and about Rs. 3.8 trillion less high denomination notes (2.5 percent of GDP),” the survey noted.

[The Business Standard]