Indian Prime Minister Narendra Modi has defended demonetization. Photo: Reuters
Indian Prime Minister Narendra Modi's strategy mystifies economists on both the left and the right. Photo: Reuters

Amid debate surrounding the results of demonetization in India, the Narendra Modi government claimed that it had added about 10.6 million new taxpayers in the financial year 2016-17. However, data accessed by a leading daily reveals that there was a huge spike in the number of “stop filers” in the same year.

The term refers to individuals who have filed tax returns in previous years but don’t do so in the current year, even if they are liable. It is important to note that this does not include individuals who have died or whose Permanent Account Number cards have been canceled or surrendered.

The number of stop-filers jumped from 856,000 in 2015-16 to 8.8 million in 2016-2017, the year demonetization happened with the voiding of two denominations of old currency. This 10-fold jump reversed a four-year trend, The Indian Express reported. It was also the highest increase since 2000-01.

“Typically, the number of stop-filers reflects a compliance and enforcement gap, which the tax administration fails to enforce,” a tax official who did not want to be named told The Express. “But this huge increase in stop filers for 2016-17 cannot be attributed to sudden changes in compliance behavior. The spike could be due to a fall in income or loss of jobs during the year.”

When contacted by the daily, the Central Board of Direct Taxation refused to comment.

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