When I walk down the streets of Delhi, there is very little chance of people knowing me. My relevancy is further lost if I tell you that I am one of the 24 lakh taxpayers who declares an income of over Rs 10 lakh. I am using data to approach what I feel is a very significant shift in the way our country’s economy will shape up based on data from Finance Minister Arun Jaitley’s Budget speech. He stated that among 3.7 crore individuals who filed their tax returns in 2015-16, the number of people showing income more than Rs 50 lakh in the entire country was only 1.72 lakh.
Contrast this to about 25 crore PAN cards allotted in the country, of which let’s assume conservatively that, about 10 crore is with individuals, and there are 8.3 crore PAN card holders who are probably not filing their income tax returns. A long known fact was stated in the Budget speech that we are largely a tax non-compliant society. Tax evasion has been a national pastime because of business owners who would work out ways to report no tax, but manage to pile up cash, which was very efficiently possible before demonetisation.
A chartered accountant friend explained how well-to-do businessmen would willingly stash the cash than pay tax. They were able to do so because of the loopholes in the tax and accounting system. In a single blow, the money that came back to banks post demonetisation has got accounted for. I hear a few big data companies are engaged with tax authorities and banks running algorithms to generate data on people who will now be forced to file tax returns. This is a big leap in increasing the taxpayer base. Don’t confuse every businessman to be an evader, but they had ways to reduce their tax liabilities.
By discouraging cash transactions with measures spelt out in the Budget speech, there is a very narrow window for people to hold on to cash. What this means even for the businessman who earlier thought he was smart keeping cash and reporting less income, is that he will hardly have any means to follow the old formula. He could sit on the cash, but the barriers that have been put to curb the use of cash, leaves him with no incentive to hold the cash. So, either he will need to spend it as business expenses and claim the depreciation benefits or simply show the real income, which will be taxed accordingly.
The increase in the taxpayer base will have a trickledown effect on the economy—there will be more tax collected, which will go into funding infrastructure development. The state of the real economy will improve because there will be very little by way of the grey market. More money will flow into the financial services and not depend on the physical assets. Personally for me, it will mean there will be greater need for financial products and services, which will further increase the relevance of the magazine you are holding in your hand.
