India chases $117 billion in back taxes

INVEStaxesdueThe Finance Ministry is asking for progress reports from tax collectors and set a date for an amnesty to pay off arrears on undeclared assets, as the government steps up efforts to meet its deficit target. In recent weeks a series of announcements have been made to streamline tax collection in the country where the tax-to-GDP ration is a low 16.6 percent, as only 1 in 18 earning individuals pays tax.

Arrears now amount to some $117 billion, but one official estimated that only 15 – 20 percent of the amount is realistically recoverable as many major debtors are simply unable to pay. Tax officials will increasingly go after entities they think can pay, with possible repercussions for disputes between the government and companies such as Vodafone and Cairn Energy.

Officials say Hasmukh Adhia, the top bureaucrat in charge of revenue and a long-time aide of PM Narendra Modi, is driving the effort. Meanwhile Finance Minister Jaitley is faced with large spending demands, including coming up with a 24 percent wage hike for some 10 million government employees and pensioners this year. Tax experts say Modi’s government is trying to modernise the system. One Delhi corporate tax consultant said the government is trying to reduce future litigation and project an investor and taxpayer -friendly regime.