In the demonetisation year, corporate investments declined by 60%

The panel set up to propose new direct tax laws submitted a report in 2018 that found that investments in the year of demonetisation (2016) fell nearly by 60%, reported The Hindu on Thursday.

According to a percentage of India’s Gross Domestic Product, corporate investments were around 2.7% in 2016 - 2017, as compared to 7.5% in 2015-2016.

Headed by former Central Board of Direct Taxes member Arbind Modi, government formed a six-member panel in November 2017 to redraft the Income Tax Act. The panel headed by Arbind submitted a report to the Ministry of Finance on September 28, 2018. The report was submitted despite a memo issued by Finance ministry that the report should not be submitted until the draft law had the agreement of at least a majority of the members of the panel. Arbind Modi was to retire on September 30, 2018.

Akhilesh Ranjan, another officer was appointed to head the panel in November 2018, while other officers remained unchanged. Ranjan submitted his report to Finance ministry on Monday. The report has not been made public yet, but Business Standard had got access to the first one last month, and reported on the contents of the second one on Wednesday.

Arbind Modi’s report had four volumes and a draft legislation for new direct taxes.

According to the report in The Hindu, a table in a chapter on reform proposals for taxes on corporate showed that aggregate investments disclosed by companies for the fiscal year 2016-’17 were ₹4.25 lakh crore which was ₹10.34 lakh crore in 2015-2016. The lowest amount of investments declared by companies prior to that in the current decade was ₹9.25 lakh crore in the 2011-12.

On November 8, 2016, Modi government had announced the demonetisation of ₹500 and ₹1,000 notes, in an effort to curb black money. However, the decision has since been blamed as one of the major reasons for a long period of economic slowdown and job losses in the following quarters.

According to Modi’s report, investments by companies were 15% of the GDP in 2010-11, followed by 10.5%, 10.2%, 9.8%, 9% and 7.5% in subsequent years. They fell to 2.7% of the GDP in 2016-17, reported The Hindu.

According to The Hindu, the figures are based on Income Tax returns filed by companies. The data in the report also showed that of the 7.8 lakh companies that filed their tax returns for 2016-17, nearly 45% reported losses. In the manufacturing sector, the number of corporate filers declined between fiscal years 2012-13 and 2016-17 – or assessment years 2013-’14 and 2017-’18.

It is not clear whether the observations described in The Hindu article were retained in the second report.

The panel for tax reforms was set up two months after PM Modi, during an annual conference of tax officers in September 2017, had said that the Income Tax Act was drafted more than 50 years ago and needed to be redrafted.