Photographer: Anindito Mukherjee/Bloomberg
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India Hunts for Tax Dodgers to Stem Slowing Revenue Growth

Updated on
  • GST collections fell 9.5% in October from the previous month
  • Tax office asks officials to compare pre-, post-GST payments

A slowdown in tax collections is pushing Prime Minister Narendra Modi’s administration to be more vigilant on compliance.

Collections under the new goods and services tax dipped to 833 billion rupees ($13 billion) in October from about 920 billion rupees the previous month, and the central bank is wary of a further dip after the government lowered rates on several items to win public support before state elections. The weakness in GST collections following a July 1 roll out has pushed down overall revenue growth.

In response, India’s tax office this month asked officials to compare payments made by the top 100 assesses in each of their zones to understand variations in pre- and post-GST payments, according to an internal letter seen by Bloomberg News. "For the purposes of collecting this data, the officers may contact the assesses personally and/or visit their premises," the note said. Finance Ministry spokesman D.S. Malik declined to comment.

Reports of evasion are already coming in with the GST being decried as technologically tedious and expensive. Lower revenue risks worsening Asia’s widest budget deficit and extending the region’s steepest jump in bond yields this quarter. Constant tinkering with the GST also makes it harder for the government to prepare its budget for the year starting April 1.

Read: Deepest India Bond Rout in 17 Years Shows No Sign of Abating

"It would be challenging to estimate the projected collections for the next year based on the actual collections for the past four months as these months have seen a lot of changes in rates and processes," MS Mani, partner at Deloitte India, said in an interview this week. "Any deficiency in the collections could add to the pressure on tax authorities to achieve the targets."

Flatlining

Contrary to initial assessments, revenue collections have been less buoyant after the GST

Source: Controller General of Accounts

* Refers to overall net tax revenue

India’s budget deficit for the year through March 31 will probably be 3.4 percent of gross domestic product, wider than the government’s 3.2 percent target, according to the median estimate in a Bloomberg survey.

The permission for tax officials to visit individuals personally goes against a recent attempt by the government to boost the use of technology in tax assessments and make the process less invasive.

Read: India Is Said to Plan Electronic Tax Scrutiny for Top 500 Firms

India has seven taxpayers for every 100 voters, ranking 13th among 18 of its democratic Group of 20 peers, according to the Economic Survey compiled by Modi’s top economic adviser. The report called for greater compliance through non-punitive means and urged that the effort to collect taxes doesn’t lead to harassment by officials.

"In the past, revenue pressures on tax officials have led to increased scrutiny and investigations of tax payers," Deloitte’s Mani said. "As the GST legislation is in its infancy and needs to be understood by all taxpayers, it is hoped that such actions would be kept in abeyance till the law settles down."

— With assistance by Kartik Goyal, Shikhar Balwani, and Archana Chaudhary

(Updates with budget details in sixth paragraph.)
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