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India To Bring Taxpayers Into Compliance

by Mary Swire,, Hong Kong

22 July 2015

The Indian Income Tax Department has begun a major tax compliance program to expand India's narrow taxpayer base by as much as 25 percent.

Under the plans, regional and local field offices have been given targets to bring new taxpayers into the tax net. It is hoped that this will increase the number of taxpayers in India by 10 milion.

Although this number appears substantial, the program will make only a minor difference to India's notoriously narrow tax base. According to International Monetary Fund figures, despite a population of 1.2bn, there are only about 40m direct taxpayers in India. Indeed, India has one of the lowest tax-to-GDP ratios among emerging market (EM) nations, at approximately 17 percent, or half the OECD average.

Implementing the proposed goods and services tax, which is making its way through India's Parliament, is a key measure intended to widen the tax base. However, the IMF also pointed the finger at poor collection practices and inefficiencies in tax administration as another reason why tax revenues in India are relatively low.

The IMF observed in its annual report on the Indian economy that "given the narrowness of current Indian tax bases, further revenue gains can be achieved by instituting tax administration reforms, including by reorganizing tax administration along functional lines, by merging indirect and direct tax boards."

"The reform of revenue administration in India would be a multi-year endeavor, but it should reduce fiscal vulnerabilities by closing some of the revenue gap with EM peers," the IMF concluded.

TAGS: compliance | tax | value added tax (VAT) | tax compliance | India | goods and services tax (GST) | services | Tax

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