By now the annual Budget of the government of India has been relentlessly analysed on its broad goals. Hence, in this piece I will concentrate on something specific that Union finance minister Arun Jaitley said in his Budget speech.

Jaitley talked about how “demonetisation was received well by honest taxpayers as ‘imandari ka utsav’”. The finance minister offered data to justify his claim. As he said: “There has been huge increase in the number of returns filed by taxpayers. In financial year 2016-17, 85.51 lakh new taxpayers filed their returns of income as against 66.26 lakh in the immediately preceding year. By including all filers as well as persons who did not file returns but paid tax by way of advance tax or TDS, we can derive the figure of effective taxpayer base. This number of effective taxpayer base increased from 6.47 crore at the beginning of FY14-15 to 8.27 crore at the end of FY16-17.”

To put it simply, what the finance minister was saying is that after demonetisation, the number of new tax returns filed went up more than it had in the past. Fair point.

But more returns being filed does not mean anything, unless it actually improves tax collections, more than it had in the past without demonetisation. Otherwise it just means creating more work for chartered accountants and everyone else involved in the tax returns filing business.

So, how do things look when it comes to tax collections? As the Economic Survey of 2017-2018 points out: “Analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs 2.5 lakh, limiting the early revenue impact. As income growth over time pushes many of the new tax filers over the threshold, the revenue dividends should increase robustly.”

Basically, what the Economic Survey is saying that a bulk of new tax filers are close to the income threshold of Rs 2.5 lakh. Income tax needs to be paid only if taxable income is more than Rs 2.5 lakh.

The Economic Survey believes that as these people earn more, they will pay more tax and come in the tax threshold. But the assumption here is that the tax threshold will continue to be the same. Logically, it will have to go up in the years to come, simply because inflation needs to be taken into account. Hence, this argument doesn’t quite work.

But we will not belabour on this point and look at more pointed data, which is the total personal income tax collections in 2017-2018, and compare it with how things were in the past. Take a look at Table 1. It basically lists the total amount of personal income tax collected over the years and how it has grown year on year.

What does Table 1 tell us? Personal income tax collections have grown at a much faster rate in many years than they grew in 2017-18 (of course, bases were lower). In fact, they grew much faster even in 2016-2017. In 2013-2014, tax paid grew by 20.34 per cent, which is not very different from the 21.02 per cent growth in 2017-2018. So, the impact of demonetisation on personal income tax collections has at best been par for the course.

Also, Jaitley in his speech did not bother talking about the negative impact demonetisation had on the economy, something we are still recovering from. Nevertheless, as the Economic Survey points out: “Macroeconomic developments this year have been marked by swings. In the first half, India’s economy temporarily “decoupled,” decelerating as the rest of the world accelerated – even as it remained the second-best performer amongst major countries, with strong macroeconomic fundamentals. The reason lay in the series of actions and developments that buffeted the economy: demonetisation, teething difficulties in the new GST… and sharp falls in certain food prices that impacted agricultural incomes.”

In fact, the sharp fall in agricultural incomes was also because of demonetisation, with cash becoming scarce in the agricultural trading system, which is primarily cash-based.

Over and above this, another factor that Jaitley did not take into account is the fact that the stock markets have been rallying for the last couple of years. In such a period, as people buy and sell shares for quick gains, the short-term capital gains tax collected by the government tends to go up as well.

Take a look at the growth in tax collections between 2005-2008. The stock markets were rallying big time back then. This is another factor that needs to be taken into account. Given that an exact breakdown of different kinds of taxes is not available in the public domain, I cannot adjust the data for it.

But, I am sure, the mandarins at the finance ministry have this data, they can very well adjust for it and then tell us, what has been the real growth in tax collections, post demonetisation, the growth in the number of tax filers notwithstanding.