The number of stop filers – those who did not file tax returns in a given year despite doing so in earlier years – rose nearly 10 times in the year of demonetisation, The Indian Express reported on Thursday. The number rose from 8.56 lakh in 2015-’16 to 88.04 lakh in 2016-’17 – the first time in four years that the number increased.
This is the highest increase since 2000-’01, tax officials told the newspaper. The number of stop filers was consistently falling from 37.54 lakh in 2013-’14 to 27.02 lakh in 2014-’15 and 16.32 lakh in fiscal 2015-’16. Stop filers do not include taxpayers who have died or whose PAN cards have been cancelled or surrendered.
Unidentified officials told The Indian Express that the number may have increased because of a fall in economic activity. “Typically, the number of stop filers reflects a compliance and enforcement gap, which the tax administration fails to enforce,” said an official. “But this huge increase in stop filers for 2016-’17 cannot be attributed to sudden changes in compliance behaviour. The spike could be due to a fall in income or loss of jobs during the year.”
The Central Board of Direct Taxes did not comment on stop filers.
The data also showed that there was a decline of more than 33 lakh in the number of those for whom tax was deducted at source and who had not filed returns in the past. This may suggest a decline in economic activity during the year, according to the newspaper.
“There are a large number of persons [more than 1.75 crore] in whose case TDS/TCS is deducted, but who do not file return,” said the CBDT. “Majority of such persons do not have taxable income. Assessment year-wise analysis of such taxpayers and the reasons for any unusual variation in their numbers over different assessment years will require some more time.”
The government has often claimed that demonetisation increased tax compliance and added 1.06 crore new taxpayers in the 2016-’17 financial year.
Officials said a change in the definition of terms like tax base, taxpayer and new taxpayer in 2016 could be a reason for a 25% increase in taxpayer base to 7.41 crore in 2016-’17. In April 2016, the CBDT defined a taxpayer to include people who paid tax through taxes deducted or collected at source even if they did not file returns. The definition of the tax base was also changed to include those in whose case TDS and TCS has been paid, but returns not filed, in any of the three financial years previous to the year under consideration.
The CBDT, however, said the definitions were not changed but “rather these non-legal words of common parlance were defined for the first time”. “The definitions of taxbase and filer base have been consistently followed over last six years and there is no artificial jump in taxpayer/filer data merely on account of a formal definition of these terms,” it said.