While there are fewer exaggerated claims this time around on how demonetisation boosted India’s tax net, the cherry picking of data and selective analysis continue.
“We are enthused by this success of our measures and we pledge to continue to take all such measures in future by which the black money is contained and the honest taxpayers are rewarded. Demonetisation was received well by honest taxpayers as “imandari ka utsav” only for this reason.”
Finance Minister Arun Jaitley made the above statement while presenting his tax proposals in the budget speech for the financial year 2018-19.
The Modi government’s fixation with the tall claim that demonetisation resulted in a leapfrog jump in the number of taxpayers in the Indian economy and an overall broadening of the tax base is quite perplexing. Though there are fewer exaggerated claims this time around, especially when compared to earlier occasions, the cherry picking of data and selective comparisons still continue.
“The growth rate of direct taxes in the financial years 2016-17 and 2017-18 has been significant. We ended the last year with a growth of 12.6% in direct taxes and in the current year, the growth in direct taxes up to 15th January, 2018 is 18.7%”.
The data pertaining to financial year 2017-18 is not yet complete and still provisional, so the above data is not used here for comparison. But for the claim that a growth rate of 12.6% in direct taxes for the financial year 2016-17 is “significant” should be compared with direct tax growth rates of the UPA-II’s last two years. It was 13.16% (FY 2012-13) and 14.24% (FY 2013-14).
What Jaitley also leaves out is that the first two financial years of the NDA-II government actually saw dramatic shrinkage in direct tax growth, around 7%-8%. So, whatever be the claim of this significant growth in 2016-17, it is based on a low base in the year 2015-16.
The next claim in the budget speech: “The average buoyancy in personal income tax of seven years preceding these two years comes to 1.1. In simple terms tax buoyancy of 1.1 means that if nominal GDP growth rate of the country is 10%, the growth rate of personal income tax is 11%. However, the buoyancy in personal income tax for financial years 2016-17 and 2017-18 (RE) is 1.95 and 2.11 respectively.”
Let’s examine this data point. For a comparison of this buoyancy factor, let’s examine what is the buoyancy factor for the last 10 years of UPA regime and the last 3 years of NDA regime. The information between years 2000-2017 is provided by the CBDT here (See table 1.4). A table is prepared based on the above information, which speaks for itself.
It is interesting to see that CBDT in the above table claim only a buoyancy factor of 1.22 for 2016-17 while finance minister says it is 1.95. You can also notice that during UPA-1 times, this factor touched a value of 2.42 in 2006-07.
The next claim is about the huge increase in the number of returns filed by the taxpayers. But instead of giving the total number of returns filed by the taxpayers, Jaitley curiously provides a data point of “returns filed by the new tax payers”. We are yet to see the total number of returns filed in the year 2016-17 in the public domain.
However, the cherry picking in the budget speech claims that 85.51 lakh new taxpayers filed returns in 2016-17 against 66.26 lakhs in the preceding year (2015-16). Here also no comparison of the growth trend can be made as the above selective data pertaining to year 2014-15 is not available in the public domain.
The annual report (2016-17) of the finance ministry reveals that the total number of new tax payers added (includes the persons from whom TDS/TCS deducted along with the people who filed returns) in 2014-15 was 78.38 lakhs and in 2015-16 it was 99.98 lakhs.
Also, the finance ministry had disclosed to Parliament that the number of new tax payers added during 2016-17 is 1.26 crores (Lok Sabha unstarred qn no. 3444 dated 4/08/2017). It is also disclosed in the same question that the tax base has increased from 6.91 crores in 2014-15 to 8.26 crores in 2016-17.
The following table using the above data points shows that while there is some growth, it would be difficult to call it a “significant” jump in the tax base or new taxpayers.It is also more than a little puzzling as to why the finance minister is not disclosing the total number of returns filed by all taxpayers between 2014-15 to 2016-17. After all, if Jaitley is correct, those data points should also suit the narrative of the significant jump in the income tax net.
When we are witnessing every attempt by the government to prove that the demonetisation resulted in dramatic turn-out in the direct tax net, let me quote Richelle E. Goodrichbi, “Lies don’t fit snugly into disguises. Eventually the cloak falls off and you’re left staring at the naked truth which is always an uncomfortable situation.”
James Wilson is working with Inter State Water Advisory Committee of the government of Kerala. He tweets @jamewils.