Photographer: Dhiraj Singh/Bloomberg

Modi Says More Indians Paying Tax After Cash Ban, GST Regime

  • About 100,000 people have paid income tax for the first time
  • India seized 1.25 trillion rupees of black money in 3 years

The number of new taxpayers in India more than doubled in the past five months and about 3 trillion rupees ($47 billion) came back to the banks after the government’s cash ban brought more people into the fold of the formal economy, Prime Minister Narendra Modi said.

“Black money which was hidden was forced to come to the mainstream,” Modi said in his independence day address at the Red Fort in New Delhi. “This is not government research, this is from external experts.”

Vowing to continue the crackdown on unaccounted wealth, Modi said more than 2 trillion rupees has reached banks after the government withdrew high-value currency notes in November, and deposits of 1.75 trillion rupees are under scrutiny. The introduction of the landmark national sales tax on July 1 will further boost transparency, Modi said.

New tax filings have more than doubled to 5.6 million between April 1 and Aug. 5, from 2.2 million a year earlier, Modi said. The government has identified 1.8 million people whose assets exceed their known sources of income, and 450,000 of them have come clean and have sought to pay up, he said.

About “100,000 people who had never heard of, or paid, income tax have been forced to do it,” he said.

Some economists said they’d wait for official data to see if greater compliance is leading to buoyant tax revenue.

“There’s no denying that there is a significant amount of tax evasion in this country but we will have to wait and see what the final tax collection number is,” said Ashutosh Datar, an economist at IIFL Institutional Equities in Mumbai.

Shell Companies

The anti-graft probes have uncovered as many as 300,000 shell companies, or non-trading firms typically used to launder money and escape tax, Modi said. The government has shut down more than half of them, he said.

“In some cases, there were 400 companies operating from a single address, and there was no inquiry or scrutiny," Modi said.

Modi, who swept to power in 2014 on promise to eliminate unaccounted cash, can count the currency clampdown and the July 1 launch of an uniform goods and services tax among his biggest policy decisions. While the economy is still recovering from demonetization, there are signs that the GST has retarded activity in the near term.

The note ban, Modi said, got money into banks, prompting them to cut interest rates. And the GST has cut time for transporting goods by 30 percent by eliminating check posts at state borders, he said.

“These reforms will have short-term pain -- for the next 12 to 18 months -- and after that the economy is expected to grow at at least 9 percent,” IIFL’s Datar said.

— With assistance by Anirban Nag

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