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The Impact of the Government Policies on Direct Tax Collections

1.PNG  Union Minister Arun Jaitley

The first sixty-seven years after Independence from 1947 to 2014 saw a total number of 3.82 crores assesses filing tax returns.  Obviously, in comparison to a total population of almost 1.3 billion, this figure appears highly inadequate.  The total direct tax collection (income tax) in 2013-14 was Rs.6.38 lakh crore.

Prime Minister Modi led NDA Government had a multi-pronged strategy to increase the tax base.  A campaign involving various steps to flush out black-money, including black-money outside the country, was initiated.  The demonetisation led to a lot of people in possession of undeclared cash depositing the same in the banking system.  The source of the money was now questioned.  Almost 18 lakh people were identified who had made deposits disproportionate to their returned incomes.  The use of technology helped the tax department significantly.  Most of the functioning of the Income-tax Department is now online, returns are filed online, queries are addressed online, assessment orders are handled online and refunds are also made online.  Technology is also used for reconciliation purposes in order to detect those who should be filing returns but are non-filers.

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The implementation of the Goods and Services Tax as a single consolidated tax has had a significant impact even on direct taxes.   Those who have disclosed a business turnover for the GST now find it difficult not to disclose their net income for the purposes of income tax.

What would be the combined impact of all these measures on India’s direct taxation base? We had targeted to optimise the base increase without any increase on the tax liability.  India’s tax to GDP ratio in four years increased by almost 1.5%.  On the contrary, a large number of taxpayers in each of the four Budgets of the present Government has benefitted from relief given.  Today a medium-term assessment of the impact of these steps can be made.  In four years, the number of assesses has increased by 64.6%.  The total number of returns filed was 6.86 crores in FY 2017-18.  The number of new assesses who filed returns in FY 2017-18 were 1.06 crore. I hope that the percentage increase when the Government completes its first five years would be significantly higher.  The total income tax collection for the year 2017-18 is Rs.10.02 lakh crore, a four year increase of 57%.  Last year, despite formidable economic challenges, the income tax collection managed to grow by over 18 percent.

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Last year, the impact of the GST on direct tax collection was not visible.  Since GST had been imposed in the middle of the year, it will be more apparent this year.  The first big news for this year is that the advance tax deposit during the first quarter of this year has seen a gross increase of 44% in the personal income tax category and 17% in the corporate tax category.  After repayment of refunds due to some excess tax paid in earlier years, which are usually paid back in the first quarter, the net amount would be somewhat lesser.  But if the same trend continues in the next three quarters, one expects a significant increase in the direct tax collection this year.  The first indication is that the spending is higher, consumption is higher and corporates are seeing increased sales and a greater prospect of profitability.  But increase in the amount of collections in category of personal income tax is also due to more people coming within the tax net.  There is also the impact of the GST visible this year.  This unprecedented taxation growth is a result of the anti-black money measures, use of technology, demonetisation and the GST.  Most of these measures were severely criticized by the Congress Party.  This is just the medium-term impact of some of these measures.  The long-term impact would be significantly higher.  Higher tax collection would enable us to continue with the developmental programmes in the country, not to impose any extra burden on the taxpayers and yet maintain the targeted fiscal deficit.

Money in Swiss-Banks

A news item has appeared today indicating an increase of money by ‘Indians’ in the Swiss banking system.  This has led to misinformed reaction in certain circles raising a query whether the Government’s anti-black money steps have yielded results.

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Switzerland in financial disclosures was always a reluctant state.  Of late it was subjected to a lot of international pressures which favoured disclosures and Switzerland ran the risk of being a ‘non-compliant’ State by the FATF.  It has, therefore, entered into several bilateral treaties for making disclosures to requesting States.  It has amended its domestic laws involving all disclosures and entered into a treaty even with India and real time flow of information with regard to Indians will be made.  The flow of information is starting in January, 2019.  Any illegal depositor knows that it is a matter of months before his name becomes public and he will be subjected to the harsh penal provisions of the Black money law in India.  Assuming this information to be correct, what does past experience show?  When disclosures have been made with regard to ‘Indians’, including in the Panama Papers, certainly some of them have held illegal accounts.  ‘Indian’ money outside the country is of various categories.  Past investigation by CBDT have shown that this includes many held by persons of Indian origin who now hold foreign passport, monies belonging to Non-Resident Indians, as also monies belonging to resident Indians who have made legitimate investments abroad, including transfer of money under the liberalised remittance schemes.  It is only monies kept by resident Indian outside these categories which become actionable.  The first two categories are within the jurisdiction of those countries where these persons are residents and the third category can easily be checked up in India.  If the deposit does not fall in any of these categories, it is per se illegal for which investigations are undertaken, arrests are made and criminal prosecutions are launched.  Switzerland has taken significant efforts to get out of the image of being a tax haven and a non-compliant State.  It is on the verge of making disclosures in real time and, therefore, is no longer an ideal destination for tax evaders.  Those who participate in a public discourse must understand these basic facts before expressing an opinion which may be ill-informed.  To assume that all the deposits are per se tax evaded money or that Switzerland in the matter of illegal deposits is what it was decades ago, is to start on a shaky presumption.

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Master stroke on black money to make India Swachch Bharat

Prime Minister’s sweep shot on corruption is the biggest ever exercise launched anywhere in the world to broom and clean up the economyi201611902

 Crack down on black money would be a big deflationary move

Author : Prakash Chawla

The mid night scrapping of Rs 500 and Rs 1000 currency notes , as announced by Prime Minister Shri Narendra Modi in his address to the nation on November 8,  is being seen as a master stroke against black money and  corruption that has been eating into the Indian economy like a termite for several decades. The sudden announcement of a decision which may be well thought over several months with only a handful of the top  echelons in the government having a whiff of it, would cause some disruptions in the interim, but then as the Prime Minister called upon the people , it is the price each citizen is called upon to  pay for defeating the monster of corruption and black money which, combined with counterfeit currency and terror funding, can strike at the root of a nation.

“There comes a time in the history of a country’s development when a need is felt for a strong and decisive step,” Shri Modi said. But for the Donald Trump victory, India’s war on black money would have created instant ripples the world over. In any case, the ripples of the Modi move to hit at the hoarders of ill-gotten money where it would hurt them the most, would be felt for the Indian economy far too long.

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While Swachch Bharat is being implemented for cleaning up streets ,roads  and building toilets ,  PM’s  sweep  shot on corruption is the biggest ever exercise launched anywhere in the world to broom and clean up the economy which was growing at the fastest clip among the global peers , yet yielding low results for the common people.  Imagine the scale at which the brooming exercise can clean up the system. By some estimates as much as Rs 14 lakh crore currency notes of Rs 500 and Rs 1000 denomination are in circulation and would be withdrawn by December 31, 2016 or at the most  March 31, 2017.

Some bankers feel that there could be as much as one-third of this amount which may not be deposited with the banks, since taking the ownership of the loads of money stashed in gunny bags may land some people in trouble. Now that would mean the country gets a windfall of Rs 4.33 lakh crore which would accrue to the nation in terms of reduced liability of the Reserve Bank of India which will replace the surrendered currency that much less.

Going forward, this huge cleaning up would lead to a much better fiscal position of the Central Government with several positives for the macro picture , the biggest being on the inflation front. As is common knowledge that inflation is fuelled by a large margins by the black money which finds its way into conspicuous spending on theme parties and building of assets like real estate.  In fact, the real estate market has been thriving only on the cash part of the deals which of course would stop, giving a jerk to the sector in the transit till it readjusts itself to the new reality. So, it is being rightly interpreted by the analysts that the crack down on black money would be a big deflationary move, ultimately helping the common people, who may have to go through some temporary pains .

Besides, the decision to scrap high value notes would drastically reduce premium on corruption in the public services since the risk –reward would be highly tilted towards the peril of being caught off-guard. As enumerated in the PM’s address to the nation, the NDA Government has taken several other measures to check the black money in the last two years. These include: a law for disclosure of foreign black money; agreements with many countries to add provisions for sharing banking information; strict law to curb benami transactions; and a  scheme for declaration of  black money after paying a stiff penalty.  As much as Rs 1.25 lakh crore has already been brought out through these efforts and if  we add another Rs 4.33 lakh crore which may not return to the banking system and become junk, over Rs 5.50 lakh crore , a humungous figure, would have been neutralized.  The benefits would certainly accrue in the medium to long term.

The only challenge for the government in the interim is to ensure that a minimum inconvenience  is caused to the common people and the banking system is geared up to instill a sense of confidence among the people that the common households’ money is very much safe.

“Honest citizens want this fight against corruption, black money, benami property, terrorism and counterfeiting to continue. Which honest citizen would not be pained by reports of crores worth of currency notes stashed under the beds of government officers? Or by reports of cash found in gunny bags? “, a decisive Prime Minister said.

He is so right when he says that in spite of  being ranked as the fastest growing economy in the world, India figures so high on the global corruption index. With so many steps having been already initiated, India still ranks 76 on this dubious distinction.

Even though initial reactions in the stock markets were adverse, as was expected, the sentiment was also related to the Trump victory which had spooked the global markets which would slowly digest the new global paradigm of challenging the status quo.

The Modi master stroke would take India several  leaps ahead as being real Swachch Bharat.

New Currency Notes of 500 and 1000 rupee.

*Prakash Chawla is a senior New Delhi-based journalist writing mostly on political-economic issues 

Empowering people with Financial Inclusion

Author : Ms Purnima Sharma

Sogada, a small village of Jashpur district in Chhattisgarh, is beautifully nestled in the lap of nature. The picturesque settlement is surrounded by green hills which make the village somewhat difficult to access. Not surprisingly, this inaccessibility has added to the difficulties being faced by the villagers in this region. Ask Roshni Bai, a resident of this village who says that the nearest bank to this village is 15 kilometer far, and for this very reason, the banking services were beyond the reach of villagers.

 Even after 69 years of Independence, people like Roshni Bai could not be brought within the banking system. Roshni Bai and their future generations could have been living in the same conditions, but for a new change occurred. Some ‘Bank Mitras’ from a bank visited her village and explained the meaning of savings and availing banking services at their doorstep.

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It was a new dawn for the villagers. People from the bank explained the benefits of opening a bank account to them. They were also told that they didn’t need to visit bank now and for banking services. Bank Correspondents will provide most of the banking services to them at their doorstep.

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After knowing all this, there was no reason for them but to open a bank account.

 Roshni Bai now has a fair amount of savings in her bank account and this has encouraged her and her husband to save more. The couple is now planning to enhance their monthly deposits and save enough money to buy a scooter for the household. This would enhance the mobility of family members and help increase the income. For the first time, Roshni Bai and crores of such people now have bank in their lives, and it happened only due to Pradhan Mantri Jan-Dhan Yojna (PMJDY).

PMJDY

Under this Scheme, a majority of people who opened their bank accounts were earlier outside the periphery of banking system. The number of people who have been included in the banking system, in such a short time, is a global record. Both public and private banks have been roped in for this scheme.

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The Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched on August  28, 2014 by the Prime Minister of India Shri Narendra Modi in the national capital with a vision to bring unbanked section of the society into mainstream banking. The Scheme was initiated to provide bank account and banking services to each household in the country so as to have comprehensive financial inclusion. So far, as on 29th June, 2016, more than 22.29 crore new bank accounts have been opened under the Yojna with a total deposits of over Rs 39,251.57 crore in these accounts, and overdraft facility has been availed in about 20 lakhs accounts.

Out of all the accounts opened under the scheme, 61% are in rural areas and more than 52% are women account holders.

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 As on 29th June, 2016, 10.39 crore of the accounts opened under PMJDY are seeded with Aadhar numbers. In addition to this, 18.22 crore Rupay Cards have been issued under PMJDY. Out of all the accounts opened under PMJDY, the zero balance accounts are now left almost one fourth only, that is 25.29 percent, which means people have started doing transactions in their accounts.

 Guinness Book of World Records has recognized the Achievements made under PMJDY especially the largest number of bank accounts opened under PMJDY in a shortest time.

The most striking feature of this Scheme is that instead of delivering banking services to villages, the focus is on households. Earlier, cities were not included in the scheme assuming that banks were already there. But 8.60 crore accounts opened in cities under PMJDY showed that it was needed in cities too. Through this Scheme, banks also got an opportunity to tap the saving potential of the common man. Apart from this, provision has also been made that accounts opened under this scheme are connected with mobile phones so that account holder can directly get information about transactions in their accounts.

Pradhan Mantri Jan-Dhan Yojana (PMJDY) has proved to be a major job creator. Empowering people by financial inclusion, and creating self-employment by increasing the availability of credit is one aspect of the scheme.

This Scheme also enabled banks to create jobs for more than 1.26 lakh Banking Correspondents who are delivering banking services to households at their door step. Banking Correspondents in many ways acts as ATM too for many people. They help people to open bank account, deliver their money and also in claiming insurance. In a very short span of time, Bank Correspondents/Bank Mitras have become very popular in the rural areas.

The objective of PMJDY is to bring common people within the sphere of social security. After Independence, the concept of welfare State has been talked about much but, how to take it to the common man has not been thought-out. As a result, lot of Government policies were formulated but their execution was poor. Money that had to reach to the masses from the Centre and State capitals used to remain unutilized or got evaporated midway somewhere.

The previously existing system was the cause of corruption where there was no provision to check whether the actual benefit of the scheme has reached to the intended beneficiary or not. A former Prime Minister’s statement was much talked about when he said that only 16 paisa out of a rupee reaches to the actual beneficiaries of  the Government funds released by the Centre for their welfare Schemes..

The Constitution, specifically, Article 41 of Directive Principles of State Policy, asks the State to “make effective provision for securing the right to work, to education and to public assistance in cases of unemployment, old age, sickness and disablement, and in other cases within the limits of its economic capacity and development,.” As the Directive Principles are not binding on the Government, there has never been much emphasis on it in earlier regimes to ensure social security for citizens.

So, the fundamental change in the methods of carrying-out the schemes was needed. Even after six decades of independence, the Government schemes could not achieve the desired results in the area of social security.  And millions of people have been left-out of the banking system. Therefore, there was a need to involve the people themselves, so that they can create their own future. At the same time, the need to include private sector was also felt. The Government is working on the very fundamental change and this transformation is indeed speedy.pradhanmantri-yojana

Previously, poor people had to put in tiring efforts and many formalities had to be fulfilled just to open a bank account.  Now they have got enough strength from the system and merely with an identity proof or self certification, an account can be opened and banking services can be availed.

With Jan Dhan, Aadhar and Mobile (JAM) technology, bank accounts are connected and middleman can no longer exploit the poor people. asdfSocial Welfare schemes were earlier more of a boon for middleman who used to siphon-off bulk of the funds by taking advantage of flaws/loopholes in the system. Ghost beneficiaries were also one of the facet through which middleman made profit. Now with Jan Dhan, Aadhar and Mobile (JAM) have eliminated the middleman altogether. Now the money is being transferred directly into the target beneficiary’s account. Such Schemes are definitely the need of the hour and play an important role in transforming the lives of people and the country at large.

Author is an independent journalist and TV anchor.

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