Ahmedabad: Finance secretary Hasmukh Adhia on Sunday said that the returns from demonetization and other “anti-evasion measures” have generated revenue to the tune of Rs90,000 crore from direct taxes.
He attributed the crash in the Indian stocks a day after the Union budget was presented on 1 February to global factors.
On the re-introduction of long-term capital gains (LTCG) tax on stocks, Adhia said that it was a logical step to bring a class of investors in the tax net who had been earning about 14-15% returns per annum. He said that companies and individuals have reported long-term capital gains worth Rs3.67 trillion for the 2016-17 assessment year.
“When we analyse this further, we learnt that most of these came from corporate and high net-worth individuals. The corporates are very happy investing their surplus in mutual funds and equity market rather than using the surplus for creating new manufacturing companies. So we have started with 10% to begin with and we also said that for small investors LTCG tax is only for over Rs1 lakh per annum,” he said.
“We have reintroduced the tax to ensure stability in the economy and to ensure that there is tax liability in every sector,” he added.
Adhia was speaking at a lecture at the Indian Institute of Management, Ahmedabad (IIM-A). He said that the structural reforms and anti-tax evasion measures such as the ban on high-value notes announced in November 2016 and benami law had led to increased buoyancy in personal income tax.
Talking on the topic “Post Budget Analysis and GST”, the finance secretary said that one of the reasons for widening of fiscal deficit was because it was the first year of implementation of the goods and services tax (GST) and there was a lot of uncertainty about revenue. Indirect tax revenue for the current year is expected to be less by about Rs50,000 crore in the first year, he added.
A second reason, according to the finance secretary, was that there was a shortfall in the non-tax revenue side. Dividend income generated was less and spectrum-related revenues were not as encouraging as the government’s expectations, he added.
As compared to what the government had budgeted, there was a shortfall of about Rs40,000-50,000 crore in the non-tax revenue.
“So we had to take into account both these factors. Part of it was made up by direct tax revenues. But fortunately for us, we were saved by direct taxes,” Adhia said.
“And now in the current year, we are seeing the buoyancy even in the corporate income tax growth and I do believe it is because of GST,” he said.
The finance secretary said that the background for the Union budget this year was based on the government’s efforts to increase agriculture output.
“Because of the government’s efforts for increasing irrigation, for better variety of seeds…the agriculture output went up…This resulted into some amount of suppression in the prices and caused a temporary distress to rural economy,” he said.
Adhia said that the government, despite facing the task to present a budget that came a year ahead of the general elections, chose the path of restraint rather than a “please all” budget.