A report submitted last year by a panel set up to propose new direct tax laws found that investments disclosed by companies declined nearly 60% in the year of demonetisation, an article in The Hindu on Thursday said. As a percentage of the country’s Gross Domestic Product, corporate investments were merely 2.7% in 2016-’17, as compared to 7.5% in the preceding year.

The government had formed a six-member panel headed by former Central Board of Direct Taxes member Arbind Modi in November 2017 to redraft the Income Tax Act. Modi submitted a report to the Ministry of Finance on September 28, 2018, despite a memo issued by the 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. Modi was to retire on September 30, 2018.

Another officer, Akhilesh Ranjan, was appointed the head of the panel in November 2018, while other officers remained unchanged. He submitted his report to the ministry on Monday. Neither report has been made public yet, but Business Standard had accessed the first one last month, and reported on the contents of the second one on Wednesday.

Modi’s report had four volumes and a draft legislation for direct taxes. In a chapter on reform proposals for corporate taxes, a table showed that aggregate investments disclosed by companies for the fiscal year 2016-’17 were Rs 4.25 lakh crore, down from Rs 10.34 lakh crore disclosed in the previous year, said the article in The Hindu. The lowest amount of investments declared by companies before that in the current decade was Rs 9.25 lakh crore in 2011-’12.

In November 2016, the government had announced the demonetisation of Rs 500 and Rs 1,000 notes – nearly 86% of the currency then in circulation – 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 Arbind 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.

These 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 book losses, according to The Hindu. 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 was set up two months after Prime Minister Narendra 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.

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