Rise in Tax Figures Maybe Due to Payment in Demonetised Notes

New Delhi: Finance Minister Arun Jaitley on Monday released tax collection figures that showed that demonetisation has not affected the economy. However, the reason the figures show an increase may be because the government allowed advance tax to be paid in Demonetized currency.

Both direct and indirect taxes have shown an increase, according to the figures. For the period April-December 2016, direct taxes have shown an increase of 12% while indirect taxes have grown 25% over the same period a year ago. For December 2016 the growth rate in indirect tax has been 14.2% compared to December 2015.

Jaitley said these numbers indicate that demonetisation has had no impact on the economy. However, all economic data points since November 8 show that the manufacturing, services, auto sales and consumer demand have taken a hit. How does one reconcile the two sets of data?

“The answer may lie in the fact that payment of taxes were allowed in old currency,” Pronab Sen, the former Chief Statistician of India told News18. “These figures are credible because the real bump in tax collection is in November and December,” he added, which is when the impact of demonetisation was felt.

Now that the December 31 window for payment in old currency has closed, the real figures for tax collection will reveal how much of an impact demonetisation has had on the economy. But that will come only after the tax collection figures for the whole financial year are in.

Satya Poddar, a tax adviser with Ernst and Young said that this explanation for the jump in tax mop up is plausible, but to really know one needs the monthly data, which has not been provided. “It is possible that the increase is due to payment in old currency notes, but it is speculation at this point and only granulated monthly data will be able to answer that question,” Poddar told News18.

Most of the growth has come from union excise duty and service tax, Poddar said. However, the Krishi Kalyan cess (a service tax introduced in the budget) and petroleum duties (excise tax) do not explain the increase in figures, according to Poddar.