While the Indian Government is trying to reduce future litigation and project an investor and taxpayer -friendly regime, at the same time it is also trying to streamline tax collection in the country.
The Indian finance ministry has recently asked for regular progress reports from its tax collectors and has set a deadlines for amnesty purposes to pay off arrears on undeclared domestic assets. In recent weeks a series of announcements aims to streamline tax collection were made. Importantly, India’s tax-to-GDP ratio, at 16.6%, is among the lowest among emerging economies. In India, only about one in 18 earning individuals pay tax. Arrears also now amount to over $115 billion, which is roughly four times what they were six years ago and according to an official estimate around or even lesser 20% of the amount is realistically recoverable as many major debtors are simply unable to pay. The Indian Tax officials are expected 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, the Indian Finance Minister Arun Jaitley has stuck to an ambitious pledge of reducing the fiscal deficit to 3.5% of gross domestic product from 3.9%, and improved tax collection could help meet that target, also asking now almost every week how much tax arrears have we recovered. Importantly, the Finance Minister faces big spending demands, including paying for around 24% wage hike for approximately 10 million government employees and pensioners this fiscal. The Tax arrears amount to about 6% of India's $2 trillion GDP and are well over 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.