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Successful DeMO will help up revenues in long run: World Bank

Monday, June 05, 2017

Successful demonetisation will help in raising revenues on sustained basis as more and more people will come under the tax net, says a World Bank report. During 2016-17, India generated additional tax revenues as unreported cash identified both through the amnesty scheme and demonetisation were brought under the tax net.

Gross tax revenue, including states' share, surpassed budgeted target (of 10.8%) at 11.3%, which was mostly due to higher-than-expected excise collections on petroleum products. Even though, demonetisation had only a neutral effect on direct taxes, which fell within the budgeted target of 5.6% of the gross domestic product (GDP), it said.

"Going forward revenues may increase permanently if demonetisation is successful in raising the amount of income reported to tax authorities," World Bank said in a chapter titled 'India's Great Currency Exchange' in its latest 'India Development Update'. On November 8, Indian government had pulled out old Rs 500 and Rs 1,000 currency notes from circulation with immediate effect, which accounted to almost 86% of cash in circulation.

The World Bank report is of the view that demonetisation has the potential to accelerate the formalisation of the economy. Informal economy accounted for over half of India's GDP as of 2008-09 and 82% of non-agricultural employment.

Formalisation is ultimately a positive transformation that can lead to greater efficiency, World Bank said.

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