Crackdown looms for India's super-rich tax avoiders

Prime Minister Narendra Modi has vowed to crack down on tax avoidance — notorious in India especially among the super rich — to tackle yawning inequality in the world’s second-most populous nation.

Figures published last month for the first time since 2000 showed just how few of India’s top earners pay tax. Only six people earning over 500 million rupees ($7.4 million) filed returns in 2012-13.

The numbers are hard to square with the estimated 2,100 ultra-wealthy Indians whose net worth exceeds $50 million, according to the Credit Suisse Global Wealth Report, or a Forbes list that found 84 billionaires.

New Delhi’s glitziest hotels host week-long, multi-million dollar weddings, drawing thousands of guests, with parties awash with Veuve Clicquot and DJs flown in from Ibiza.

But now the government’s top taxman is looking to join the dots, by cross-checking income declarations with data from luxury car dealerships — as well as property registers, fixed bank deposits and stock market transactions.

“The people in the higher bracket are not paying the correct amount of taxes. This is a fact,” revenue secretary Hasmukh Adhia told AFP of the new initiative.

“We need to do something about it. We are taking a lot of enforcement action.”

Billions of dollars in unpaid taxes deprive the Indian government of revenues that could be spent on changing lives in a country where 270 million people survive on less than $2 a day, according to the World Bank.

But rounding up tax is difficult when dodging it is practically a national sport, from small-time landlords who request rent in cash to large-scale money laundering via state lotteries.

Andrea Baldi, head of Asia Pacific for Lamborghini, said tracking its sales is unlikely to net the government many avoiders.

“The people in India who are not declaring their tax are not the kind of people that will buy a very flashy car and drive in front of the entire city displaying their wealth.”

– Black money –

Across all levels of society, India’s taxpayers are startlingly few, with only around 2.5 percent of its 1.2 billion population filing returns — largely because the so-called unorganised sector employs so many people.

“We’ve always had the sense that the tax base is really, really poor, that we need to build up taxation, but it does come as a bit of a shock,” said Sonu Iyer, a partner at EY, of the recent data.

“The numbers get progressively poorer as you move up the ladder.”

At least 500 Indians including Bollywood celebrities, business tycoons and an ex-cricketer were named in the recent Panama Papers investigation as using tax havens — a practice not, in itself, illegal.

But the revelations prompted Modi, who has made tackling “black money” a tenet of his two years in office, to order an investigation.

Rules introduced this year make it mandatory to declare a unique taxpayer number when purchasing goods over 200,000 rupees and to pay one percent in tax when buying cars over one million rupees.

And this month the government closed a major loophole in Mauritius, where a decades-old treaty enabled people to route cash via the island without paying capital gains tax.

Yet some of India’s wealthy are not obliged to pay income tax at all.

Agricultural income is not taxed, which has long been a sensitive issue because of an oppressive colonial practice of taxing farmers heavily.

“Some states like Punjab have some very wealthy farmers, but because there is no tax on agricultural income they are outside the purview (of tax authorities),” said Suresh Surana, an accountant in Mumbai.

– ‘Talk of the town’ –

New Delhi was nudged into releasing income tax data after celebrated economist Thomas Piketty, known for his work on inequality, publicly chastised the government for withholding it.

Although an interesting snapshot, Piketty told AFP it falls short of what is needed to gauge the full picture.

“At this stage the data that was released is insufficient for a proper analysis,” he said, adding that “one cannot draw any conclusion about inequality”.

The government says it is a start — and that greater transparency will kickstart a culture of shame, rather than begrudging admiration, for those who keep their money out of the taxman’s hands.

“By putting this data in the public domain the public discussion has started,” Adhia, the revenue secretary, said.

“You are saying, ‘it is very bizarre that in a big country with so many wealthy people and palaces, you are having only so many people paying tax.’ That will be the talk of the town.”