Demonetisation benefits: Arun Jaitley hints at tax cuts

NEW DELHI: With less than 50 days before the budget for 2017-18+ is unveiled in Parliament, finance minister Arun Jaitely said on Tuesday that the government’s demonetisation decision and digital push will enable it to make both direct and indirect taxes more reasonable at “some stage”.

While Jaitley did not specify any timeline for possible cuts in tax rates, his comments have triggered expectations that the government will use the revenue gains accruing from demonetisation to fund a taxpayer friendly budget to lift the economic sentiment.

In the past two weeks, several experts have advocated measures to offset economic contraction+ triggered by the cash crunch after the withdrawal of old Rs 500 and Rs 1,000 notes on November 8. Most forecasters have downgraded the 2016-17 GDP forecast to 7%, from the initial estimates of 7.5% to 8%.

Jaitley’s comments come against the backdrop of healthy growth in tax revenues+ , which have so far not been affected by the demonetisation. Latest data show 15% growth in direct taxes in April-November, while indirect taxes rose 26% in the same period. Inflows from income declaration scheme announced on November 30 will also boost tax revenues.

“So much money that was operating as loose cash in the system, has today come into the banking system. It has to be accounted for where taxes have not been paid, which will now be recovered,” Jaitley said in an interaction with the media. The government will unveil the 2017-18 budget on February 1, nearly a month ahead of the traditional schedule of the last day of February .

“Future transactions would be substantially digital+ and they would come in the tax net. Therefore, the future taxation level would be much higher than what is currently being collected. This would also enable the government at some stage to make taxes more reasonable, which will apply to both direct and indirect taxes,” the finance minister said.

Elaborating on benefits of demonetisation, FM said it improve banks’ ability to lend more to boost growth.

“The banking system will have lot more cash and therefore, its ability to support the economy with low cost cash would be much higher.”

He said RBI will inject significant amounts of new currency into the system in next three weeks which will reduce the pressure and ease the problem that people are facing.

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Source:Ndtv