Digital transactions effect Tax

New Delhi December 14 : Finance Minister Arun Jaitely noticed the government's demonetization decision that the digital push will enable it to make both direct and indirect taxes more reasonable at "some stage". After the demonetization which is less than 50 days before the budget for 2017-18 is unveiled in Parliament.

Jaitley did not specify any timeline for possible cuts in tax rates also, 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 were against the backdrop of healthy growth in tax revenues, which have so far not been affected by the demonetization.

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 came into the banking system. It has to be accounted for where taxes have not been paid, which will now be recovered," Jaitely said in an interview.

He said RBI will inject significant amounts of new currency into the system in next three weeks which will reduce the effect of demonetization.