FM Jaitley hints at tax rate cut; says demonetisation will increase taxation base:14-Dec-2016

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Finance Minister Arun Jaitley on Tuesday hinted that tax rates might be brought down as demonetisation is likely to bring in higher tax revenues from unaccounted wealth. In a statement released to the media, Jaitley said that a substantial quantum of future transactions would be digital as India moves towards a less-cash society.

“Once they are substantially digital, they get caught in 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,” he said.

The statement came roughly one-and-a-half months before the Budget 2017-17, which is expected to be tabled in Parliament on February 1.

While Jaitley did not refer to the Budget, it is widely expected that the central government might announce a number of direct tax sops for individuals as well as the corporate sector in the Union Budget for 2017-18 to soften the ‘pain’ of demonetisation.

The Budget might have revisions of the tax slabs, reductions in the corporate tax rate, and more tax exemptions or rebates in certain cases.

The government recently gave a number of incentives and discounts to promote digital payments.

Jaitley also warned of a “heavy price” that unscrupulous elements will have to pay for amassing large amounts of cash unlawfully, saying agencies were keeping a close eye on them.

Meanwhile, the initial public support to Prime Minister Narendra Modi’s demonetisation move is likely to face the law of diminishing returns.

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