In need of cash, India chases $117 billion in elusive back taxes | Reuters - Firstpost
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In need of cash, India chases $117 billion in elusive back taxes | Reuters

  Updated: Apr 18, 2016 10:56 IST

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NEW DELHI The 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.

The need for money is pressing.

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 D.S. Malik said.



Jaitley faces big spending demands, including paying for a 24 percent wage hike for nearly 10 million government employees and pensioners this year.

Tax arrears amount to about 6 percent of India's $2 trillion GDP and are more than the government's market borrowing target of $90 billion this fiscal year.

In fiscal year 2015/16, authorities recovered nearly $5.2 billion, according to tax department data as of February 29. But they also raised new tax demands of over $18 billion.

Some current and former finance ministry officials said they were reluctant to reach settlements or write off losses even when it was clear the money was lost, fearing political retribution and corruption investigations.

Instead, they said they made new demands for back taxes to be paid, raised targets and left others to clean up the mess. One official said he did not know of a single decision to write off a major tax demand in the last 10 years.



Modi's government is trying to modernise the system, tax experts said.

For example, tax officials have been told to not appeal tax tribunals' decisions involving dues of up to 1 million rupees, and Jaitley has offered to settle outstanding tax disputes out of court, although it comes with conditions.

He has promised not to invoke a contentious rule on retrospective taxes, at the heart of a bruising dispute with Vodafone, in future.

"We want people to clean up their taxation issues," Jaitley said last month, while warning of "sleepless nights" to evaders using offshore accounts.

He also offered a three-month amnesty to taxpayers, starting June 1, to pay off taxes on undeclared domestic assets.

A similar scheme announced last year to declare foreign assets yielded recovery of less than $1 billion in extra taxes.

Amit Maheshwari, a Delhi-based corporate tax consultant, said the government could do little to settle past tax disputes, but was trying to reduce future litigation.

"The government is trying to project an investor- and taxpayer-friendly regime."


Some 4.4 trillion rupees in outstanding tax dues are owed by companies and the remaining 3.3 trillion by individuals, tax department data obtained by Reuters show.

Last year the government told parliament that just 17 people owed the government 2.14 trillion rupees, with each more than 10 billion rupees in arrears.

Among them is Hasan Ali Khan, a businessman who raised racing horses for a living.

In 2007, tax officials raided his offices in Maharashtra state for not filing returns since 2001, and charged him with tax evasion and money laundering violations.

They also slapped a back tax demand on Khan of nearly 370 billion rupees.

After a near decade-long battle, which saw Khan imprisoned for more than four years, the tax tribunal cut his liability to 30 million rupees.

In the ruling on Feb. 29 the tribunal said tax authorities did not have evidence of his income to back their demand and should reassess his case.

Khan was not available for comment. His lawyer said he planned to appeal the new tax demand.

($1 = 66.6300 rupees)


(Editing by Mike Collett-White and Paritosh Bansal)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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