Finance Minister Arun Jaitley posted a strong defence of demonetisation 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 described 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 formalise the economy”.
Arun Jaitley said in the aftermath of the notes ban, it was becoming increasingly difficult to evade the tax system.
“An ill-informed criticism of the demonetisation is that almost the entire cash money got deposited in the banks. 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,” Mr Jaitley wrote.
“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.”
The comment is seen in reference to massive criticism of the government after the Reserve Bank of India’s annual report showed that 99.3 per cent of the banned cash had returned.
Mr Jaitley said demonetisation compelled people to deposit 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, larger 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 sudden 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 increased to 6.86 crore. By the time the first five years of this government are over, we will be close to doubling the assessee base,” he wrote.
Mr Jaitley said demonetisation, 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 formalisation of the economy has led to the tax payer base increase from 6.4 million in the pre-GST regime to 12 million tax payers in the post-GST regime.”
He added: “More formalisation, more revenue, more resources for the poor, better Infrastructure, and a better quality of life for our citizens.”