'Note ban led to wider taxpayers' base, more household savings'

New Delhi: The demonetisation of high-value currency notes in November 2016 resulted in a widening of taxpayers’ base and rise in household savings, said the Economic Survey 2017-18 tabled in Parliament today. The pre-budget survey further said policy priorities over the short term focused on reviving investments by mobilising savings and encouraging the conversion of gold into financial savings.

“The share of financial saving is already rising in aggregate household saving – with a clear shift visible towards market instruments a phenomenon that has been helped by demonetisation,” said the document authored by a team led by Chief Economic Advisor Arvind Subramanian.

Taking into account the pre-existing trend growth in new tax filers through regression analysis, the survey carried out a rigorous assessment of the impact of demonetisation. “Taking seasonality into account it is found that there is a 0.8 percent monthly trend increase in new tax filers (annual growth of nearly 10 percent). The level of tax filers by November 2017 was 31 percent greater than what this trend would suggest, a statistically significant difference,” said the Economic Survey 2017-18 released by the government today.

“This translates roughly into about 18 lakh (1.8 million) additional taxpayers due to demonetisation-cum-GST, representing 3 percent of existing taxpayers,” it said. Prime Minister Narendra Modi through a television address to the nation on November 8, 2016, had announced the scrapping of the high-value Rs 500 and Rs 1,000 banknotes to counter the menace of black money and terror funding.

As per the Economic Survey analysis, new filers reported an average income, in many cases, close to the income tax threshold of Rs 2.5 lakh, limiting the early revenue impact. “As income growth over time pushes many of the new tax filers over the threshold, the revenue dividends should increase robustly,” it added.

Besides, the survey said one of the main aims of demonetisation and the Goods and Services Tax (GST) was to increase the formalisation of the economy and bring more Indians into the income tax net, which includes only about 5.93 crore individual taxpayers (filers and those whose tax is deducted at source in 2015-16).

It is equivalent to 24.7 percent of the estimated non- agricultural workforce who pays tax. After November 2016, 1.01 crore (10.1 million) filers were added compared to an average of 62 lakh (6.2 million) in the preceding six years. After demonetisation, the Reserve Bank had scaled up its liquidity absorption operations using a mix of both conventional and unconventional instruments.