Several media outlets and politicians have time and again discussed and debated the impact of demonetisation, often criticising the measure. However, the fact is that demonetisation has had a twofold impact in broad terms: One was a rise in digital payments; the other was curbing corruption, tax evasion and black money.
The details of demonetisation’s impact on the economy can be read in our article Demonetisation: A Historic Success. Here, we will discuss the latter impact, since it was the very reason why the decision was taken in the first place.
Since demonetisation, there has been a slew of other reforms implemented to curb corruption. Let us look at some of these measures:
- Enactment of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
- Enactment of the Benami Transactions (Prohibition) Amendment Act, 2016
- Task Force (TF) on Shell Companies constituted under the joint chairmanship of Revenue Secretary and Secretary (Ministry of Corporate Affairs) in February, 2017
- Quoting of PAN has been made mandatory for sale or purchase of any goods/ services above Rs 2 Lakh.
Operation Clean Money
Begun on January 31, 2017, to analyse the data of persons who deposited large sums of cash and whose income returns were not in sync with such deposits, Operation Clean Money (OCM) has since been moved into its second phase.
In the first phase itself, 18 lakh suspect cases were identified where cash transactions did not appear to be in line with the tax profiles of depositors. The scale of the operation can be gauged by the fact that cash deposits of Rs 3.68 lakh crore in 23.22 lakh accounts were under investigation.
Nabbing Tax Evaders & Ensuring Tax Compliance
Black money is not the only yardstick for corruption and for the improvement in fiscal regulation. Improved tax compliance is also a measure to quantify the effects of demonetisation and especially on unaccounted money.
Direct Tax Collections up to December 2017 show that net collections are at Rs 6.56 lakh crore, which is 18.2% higher than the net collections for the corresponding period of the previous year.
With the aim of tackling black money, the Income Tax (IT) Department has initiated criminal prosecution proceedings in a large number of cases of tax offenders and evaders. As per the Ministry of Finance: “Prosecutions have been initiated for various offences including wilful attempt to evade tax or payment of any tax; wilful failure in filing returns of income; false statement in verification and failure to deposit the tax deducted/ collected at source or inordinate delay in doing so, among other defaults.”
As a result, there has been a sharp increase in prosecutions of tax evaders. Let us take a look at the following statistics:
The IT Department filed prosecution complaints for various offences during fiscal 2017-18 (data till end-November 2017):
|YEAR||NUMBER OF CASES||INCREASE|
The number of complaints compounded by the IT Department during the current fiscal (data till end-November 2017):
|YEAR||NUMBER OF CASES||INCREASE|
The number of defaulters convicted by courts has registered a sharp increase during the current fiscal:
|YEAR||NUMBER OF DEFAULTERS CONVICTED||INCREASE|
Prohibition of Benami Properties
Provisional attachment has been made in more than 900 cases of properties under the Prohibition of Benami Property Transactions Act (the ‘Benami Act’).
The value under attachment is more than Rs 3,500 crore, including immovable properties of more than Rs 2,900 crore.
More than a year after demonetisation, and after some time has lapsed since the introduction of other reforms to curb corruption, including black money and benami properties, it appears that the IT Department has had a good year — with markedly better results than even in the immediately preceding year – in fiscal 2017-18 till date. If a structural change has been made to the economy by demonetisation and the other policies, then this is perhaps the first full measure of its success in helping to clean up the economy a year later.
Also read our earlier articles:
Quantifying the Impact of Demonetisation on Black Money;
Demonetisation: A Historic Success;
Demonetisation – A Success for Digital Payments;
Joining the Debate with Those Invoking Raghuram Rajan Against Demonetisation;
Does the RBI Report Give the Lie to Demonetisation, as the Media Would Have Us Believe?;
Demonetisation: The Correct Perspective on Digital Payments, Currency Circulation and Formalisation