India will clamp down on tax evasion and is on track to meet its 2012-13 tax collection target despite a sharp economic slowdown, Finance Minister P. Chidambaram said on Monday, amid concerns about a ballooning fiscal deficit.
A slump in growth and a rising fuel subsidy bill have raised worries that the government will miss the fiscal deficit goal of 5.1 per cent of GDP. In four months, India has consumed half the deficit budgeted for the full fiscal year and Chidambaram is now seeking ways to raise revenue.
Separately, he said the government would wait for the recommendations of a government panel before deciding whether to issue a controversial tax demand to Vodafone for its $11 billion purchase of Hutchison Whampoa's Indian assets.
Chidambaram said the economic slowdown would have some impact on tax receipts but the government plans to offset that partly by bringing non-tax compliant firms under the tax net.
"While GDP growth will have an impact on the tax collections, I do not feel there is a one-to-one correlation," Chidambaram told reporters after his meeting with top officials of the income tax department.
India's economic growth languished near its slowest in three years in the April-June quarter, and some private economists forecast the growth could slip to below 6 per cent for the fiscal year, against the government's initial target of over 7 per cent.
Chidambaram was confident the target of Rs 570 crore for personal income and corporate tax for 2012-13, up nearly 15 per cent over the previous year, would be achieved.
"We can still achieve the target," he said, noting that currently just 6,000 companies paid nearly 90 per cent of the corporate tax, accounting for 65 per cent of all direct taxes.
He asked the officials to focus on non-compliant corporate and individual taxpayers to expand that base, while creating a friendly environment for genuine taxpayers.
By raising average corporate tax collections by two percentage points, overall revenues would go up by nearly Rs 30,000 crore, Chidambaram said—enough to meet the increased oil subsidy burden this year.
Tax officials are concerned it may not be easy to achieve growth in taxes at a time when manufacturing sector growth has slipped to an annual 0.2 per cent and farm output is up merely 2.9 per cent, impacting overall economic activity.
Stung by rating agency S&P's warning that India may become the first country in the BRICS group of big emerging markets to lose its investment grade rating, the finance ministry is contemplating various steps to revive investor confidence.
Relief to Vodafone?
The finance minister said the government would consider the suggestions of the Shome committee, set up to review controversial General Anti-Avoidance Rule (GAAR), and retrospective tax measures broadly intended to target Vodafone's Hutchison Whampoa purchase.
The tax panel, led by Parthasarthi Shome, a former adviser to the finance minister, suggested last week in a draft report that the GAAR implementation should be deferred by three years, in a move that is seen as a sign the government is backtracking on measures that would unnerve investors.
"Dr Shome has promised to look into it. Let us see what he has to say after comparing the similar provisions in other jurisdictions," Chidambaram said, when asked whether the government intends to tax Vodafone.
He said income-tax officials would consider the committee's recommendations along with previous court decisions before deciding whether to issue a tax demand.
Copyright: Thomson Reuters 2012
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