Demonetisation behind Buoyancy in Tax Collections Says RBI MPC Member Ashima Goyal
Moneylife Digital Team 25 October 2022
Gross tax collection on corporate and individual earnings has increased nearly 24% so far during the current fiscal year (FY). Attributing the rise in tax collections to demonetisation, Dr Ashima Goyal, member of the Reserve Bank of India (RBI)'s monetary policy committee (MPC), says increased tax collection will help the country move towards the ideal situation where low taxes are levied on a large base, says a report.
Noting that demonetisation had short-term costs but some long-term benefits, Dr Goyal says it enhanced digitisation and formalisation in the economy and reduced tax evasion, although all this has further to go, says a report from Hindu Business Line.
"It contributed to the buoyancy in taxes the country is benefitting from today. This helps us move towards the ideal of low tax rates on a large base," she says.
On 8 November 2016, prime minister (PM) Narendra Modi announced the demonetisation of old Rs1,000 and Rs500 currency notes. One of the key objectives of this unprecedented decision was to end black money, counter terror financing and do away with counterfeit currency and promote digital payments.
Earlier this month, the Supreme Court (SC) asked the Union government and RBI to file comprehensive affidavits on the 2016 demonetisation decision and also keep the files ready in connection with the Union government's letter to RBI, the decision of the RBI board and the demonetisation announcement. (Read: Demonetisation: SC To Examine 2016 Decision, Seeks Detailed Affidavits from Centre, RBI)
During September 2022, the gross goods and services tax (GST) revenues is Rs1,47,686 crore. This includes central GST (CGST) of Rs25,271 crore, state GST (SGST) of Rs31,813 crore, integrated GST (IGST) of Rs80,464 crore, including Rs41,215 crore collected on import of goods and sess of Rs10,137 crore, including Rs856 crore collected on import of goods.
This is the eighth month and, for the seventh month in a row now, the monthly GST revenues have been more than the Rs1.4 lakh crore mark. The growth in GST revenue till September 2022 over the same period last year is 27%, continuing to display very high buoyancy. In August 2022, 77mn (million) e-way bills were generated, marginally higher than 75mn in July 2022.
When asked about the central bank digital currency (CBDC), Dr Goyal says the objectives of the CBDC are to reduce the use of cash and provide additional functions to the existing payment system rather than replace it. "CBDC can certainly meet new needs in the digital age, reach remote areas and enhance financial inclusion, and save costs since cash is expensive and cumbersome," she says.
Earlier this month, RBI released a concept note on CBDC for the country. CBDC can be classified into two broad types, general purpose or retail (CBDC-R) and wholesale (CBDC-W), and RBI says it would soon start pilot launches of e-rupee for specific use cases.
RBI broadly defines CBDC as the legal tender issued by a central bank in a digital form. "It is akin to sovereign paper currency but takes a different form, exchangeable at par with the existing currency and shall be accepted as a medium of payment, legal tender and a safe store of value. CBDCs would appear as liability on a central bank's balance sheet," it says in the concept note.
According to the RBI's MPC member, multiple policy levers available to reduce the deficit, among shorter-term measures, are exchange rate depreciation and reducing aggregate demand. "More emphasis should be on longer-term sustainability-aiding measures such as reducing oil intensity as well as dependence on energy imports and encouraging exports," Dr Goyal was quoted in the report.
2 years ago
If tax collections are indeed "buoyant", the Indian government would have never had any problems paying the states their GST dues or reduce spending on education and healthcare. Demonetization was not a "short-term cost"; it was a literal slaughter where a few hundred died standing in queues outside banks for hours just get a measly amount of their perfectly legal money in the bank. Ms Goyal has inadvertently conceded that demonetization's ultimate objective was to drive the usage of the likes of PayTM and Aadhar even if it involved impoverishing large sections of poor India.
2 years ago
so if i read this correctly, we will move towards low income tax rate, given that we are highly digitized now, and tax collections both income as well gst are rising, right time to reduce the tax rate ?
Replied to sudarshan16203 comment 2 years ago
On the contrary, we will be taxed on every bank transaction
Replied to studies comment 2 years ago
well if all other taxes are abolished and only BTT is applied, then its fine
2 years ago
Sounds like an application for a job!!!
Meenal Mamdani
2 years ago
This is untrue.
Processes can be digitized without resorting to the distress caused to the economy, particularly the informal economy, by demonetization.
Prior to demonetization and subsequently, many of the interactions with the tax service have become digitized and simple both for individuals and businesses.
That is the reason for the higher inflow of taxes, not the demonetization shock.
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