The Strategist

Number of taxpayers in India grows by 9 million

06/01/2017 - 11:55

Indian Prime Minister Narendra Modi's fight with the hidden income of Indian citizens over the past year has contributed to the growth of the number of new taxpayers: they have increased by 9.1 million. This number is almost equivalent to the population of Austria.

Miran Rijavec via flickr
Miran Rijavec via flickr
In November last year, the government of Moody invalidated 86% of the currency in an attempt to crack down on black cash and counterfeit banknotes. 6.525 billion Indian rupees in black cash emerged by October 1, 2016. Now, Indian Finance Minister Arun Jaitley believes that all these efforts have helped the tax authorities identify more taxpayers in the country.

"One thing became clear once the measures of the Central Council on direct taxes after demonetization were taken: having excessive cash and evading taxes is unsafe", Jaitley said.

Over the past year, the Central Council for Direct Tax has raised Rs 14.6 trillion more than in the fiscal year 2016, according to the Business Standard. In 2016 tax collections in India brought 146 trillion rupees. In 2017, India faced a huge problem of tax evasion.

"The number of people who have an income of more than Rs 5 million in the whole country is only 17.2 million. We can compare this to the fact that cars sold over the past five years brought more than 1.25 billion rupees, and the number of Indian citizens, flying abroad for business purposes or for tourist trips, amounted to 20 million in 2015. From this it can be concluded that our society has not yet reached the proper level from the tax point of view", Jaitley added.

In fiscal year 2016, only 37 million people filed tax returns, and the demonetization was aimed at helping tax authorities obtain the most complete information about bank deposits. "We decided to demonetize not for the sake of some immediate benefit and super-profits, but within the framework of a long-term structural transformation", said Modi.

Modi’s monetary reform 

November 8, 2016. The authorities of India are unexpectedly announcing  the withdrawal of banknotes of 500 and 1,000 rupees in India. The money could be exchanged in banks before November 30, but retailers and taxi drivers across the country refused to accept these banknotes immediately.

The service sector of India almost completely works on cash. Pay a taxi, small purchases, tours and other card is almost impossible if you have no cash in your pocket. In this case, the seized banknotes accounted for up to 80% of India's total monetary circulation, so the resulting chaos was simply unmanageable.

It is worth noting that many residents of India, working in low-paid jobs, received wages in banknotes of 500 and 1,000 rupees. Once the reform was aired, they found themselves with already useless money. People had to open mass accounts in banks, stand out huge queues, and then withdraw money in smaller banknotes.

At the same time, the Central Bank of India issued banknotes of 2 thousand rupees, but they were too big for most ATMs. The authorities promised to solve the problems within a month, but the software and modernization were not carried out in most of the country. Tourists were in the most difficult situation: given the huge queues and congestion of banks, they simply could not change the currency. Local tourist centers provide an opportunity to exchange money, but the rate in them is completely unprofitable.