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India chases $117 billion in elusive back taxes

In need of cash, tax collectors were asked for regular progress reports by the finance ministry

Policy Pulse
Publish Date: Apr 18 2016 12:30PM | Updated Date: Apr 18 2016 12:30PM

India chases $117 billion in elusive back taxes

Finance Ministry is asking for regular progress reports from tax collectors and has set a date for an amnesty to pay off arrears on undeclared domestic assets, as the government intensifies efforts to meet its ambitious deficit target.


A series of announcements in recent weeks aims to streamline tax collection in a country where the tax-to-GDP ratio, at 16.6 percent, is among the lowest among emerging economies. Only about one in 18 earning individuals pays tax.


Arrears now amount to some $117 billion, roughly four times what they were six years ago.


Yet one tax official estimated only 15-20 percent of that was realistically recoverable, with many major debtors simply unable to pay. Even the lower target would take years to achieve, he said, given India's sluggish legal process.


Tax officials may go increasingly after entities they think can pay, with possible repercussions for long-running disputes between the government and companies such as Vodafone and Cairn Energy.


In the union budget, Finance Minister Arun Jaitley stuck to an ambitious pledge of reducing the fiscal deficit to 3.5 percent of gross domestic product from 3.9 percent, and improved tax collection could help meet that target.


"The finance minister asks almost every week how much tax arrears have we recovered," said a senior finance ministry official, requesting anonymity as he was not authorised to speak to the media on tax issues. Hasmukh Adhia, the top bureaucrat in charge of revenue and a long-time aide of Prime Minister Narendra Modi, is driving the effort, officials said. Adhia did not respond to an interview request.


"The government has to recover the arrears in any case from the taxpayers from whom it is due," finance ministry spokesman DS Malik said.