TIME Asia | Taxing Eloquent In India

	ASIA	JANUARY 19, 1998 VOL. 151 NO. 2
Taxing Eloquent In India Delhi reaps a windfall as hundreds of thousands of citizens confess their earnings and pay up BY MASEEH RAHMAN New Delhi The culture of tax evasion has deep roots in India, partly because of exorbitant rates--as high as 97.7% on the top bracket of personal income in the early 1970s. But a clever carrot-and-stick policy from reformist Finance Minister P. Chidambaram promises to turn things around. Last year he slashed rates and then offered tax-dodgers an amnesty: as long as they paid their due, no questions would be asked about past sins. For good measure, he threatened huge penalties for noncompliance--up to 300%--and set tax collectors loose on a few well-publicized raids. With the tallies now becoming public, the result is nothing short of spectacular. By the Dec. 31 deadline, hundreds of thousands of tax scofflaws had gone straight, and India's coffers were $2.5 billion the richer. Gushes New Delhi's chief income-tax commissioner S.C. Parija: "We might be witnessing the transformation of Indians into a nation of taxpayers." The amnesty offer produced extraordinary scenes of individuals and corporations falling over themselves to report their true earnings by the New Year's Eve deadline. In bustling Bombay, which accounts for more than a third of the nation's tax receipts, big business houses and multinational corporations alike came forward. The Indian companies confessed to cooking their books, while the foreign ones admitted concealing the full salary bills of their top executives, most of which get paid abroad. In Hyderabad, one individual revealed a previously undisclosed $150 million cache of Indian and foreign bank deposits, property, diamonds and jewelry. In New Delhi, a developer of plush farmhouses, a favored accommodation of the capital's corrupt power-brokers, owned up to holdings of $15 million. And in Calcutta, a wealthy family stunned taxmen by declaring 1.6 tons of silver coins and utensils worth more than $300,000. Says Vishwanath N. Pandit of the Delhi School of Economics: "Today's lower tax rates are certainly one reason why the amnesty scheme succeeded. People have a different mindset now." It wasn't only the rich and the powerful who cleared their consciences by taking part in the tax carnival. In New Delhi, a school teacher confessed to possessing a refrigerator worth $250, bought with money from students he tutors after hours. A budding builder who has accumulated a small fortune selling lean-tos to newly arrived migrant workers revealed a profit of $600 on each deal. A man who started on the streets in the 1970s buying and selling old newspapers admitted the business now has a turnover of more than $1 million. And six women declared hidden collections of jewelry totaling $9 million; one insisted it remain a secret even from her husband, making tax officials suspect the gems were a gift from a rich lover. "It is these unlikely visitors to the tax office who reflect a change in attitude," concludes deputy income tax commissioner Siddhartha Mukherjee. "Till now, most people took pride in dodging taxes." From being the world's highest-taxed nation 30 years ago, Indians now pay modest top rates of 30% on personal income and 35% on corporate earnings. But the habit of tax evasion--which developed alongside World War II profiteering and black-market business dealing--has become so widespread that economists estimate that at least a quarter of India's $365 billion in national income goes untaxed. Remarkably, only 12 million citizens in a country of 950 million paid any income levies at all last year. Despite its over-manned civil service, India ranks below developing countries like Nicaragua and Ethiopia in tax compliance. Now it wants to build on the amnesty's success. Besides trying to mop up revenue from the "black" economy, New Delhi has launched a drive to double the number of taxpayers in the next three years. Though no one has yet been jailed for failing to pay taxes, Chidambaram hopes the threat of 300% penalties will have its intended effect. Yet many experts fear that the amnesty's gains may be temporary. "Tax evasion is no longer marginal, deviant behavior in India," says Kamal Nayan Kabra of the Indian Institute of Public Administration. "It's very much a mainstream activity." What's the government going to do with its $2.5 billion windfall? Many business leaders and economists say New Delhi should be careful not to fritter the money away but instead invest it in critical development projects, like improving roads and electricity supply. Better infrastructure is considered vital if India's economy is to attract foreign capital and grow at a faster rate. And will the amnesty have any long-term affect on taxpayer behavior? It's too early to tell, of course, but one recent report may be instructive. At the exclusive Mercedes-Benz outlet in New Delhi, sales in December, normally a slack month, totaled 40 cars, nearly four times last year's figure. Now that taxpaying Indians no longer have to hide their wealth, some of them have evidently decided to enjoy it.
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Delhi reaps a windfall as hundreds of thousands of citizens confess their earnings and pay up

BY MASEEH RAHMAN New Delhi

The culture of tax evasion has deep roots in India, partly because of exorbitant rates--as high as 97.7% on the top bracket of personal income in the early 1970s. But a clever carrot-and-stick policy from reformist Finance Minister P. Chidambaram promises to turn things around. Last year he slashed rates and then offered tax-dodgers an amnesty: as long as they paid their due, no questions would be asked about past sins. For good measure, he threatened huge penalties for noncompliance--up to 300%--and set tax collectors loose on a few well-publicized raids.

With the tallies now becoming public, the result is nothing short of spectacular. By the Dec. 31 deadline, hundreds of thousands of tax scofflaws had gone straight, and India's coffers were $2.5 billion the richer. Gushes New Delhi's chief income-tax commissioner S.C. Parija: "We might be witnessing the transformation of Indians into a nation of taxpayers."

The amnesty offer produced extraordinary scenes of individuals and corporations falling over themselves to report their true earnings by the New Year's Eve deadline. In bustling Bombay, which accounts for more than a third of the nation's tax receipts, big business houses and multinational corporations alike came forward. The Indian companies confessed to cooking their books, while the foreign ones admitted concealing the full salary bills of their top executives, most of which get paid abroad. In Hyderabad, one individual revealed a previously undisclosed $150 million cache of Indian and foreign bank deposits, property, diamonds and jewelry. In New Delhi, a developer of plush farmhouses, a favored accommodation of the capital's corrupt power-brokers, owned up to holdings of $15 million. And in Calcutta, a wealthy family stunned taxmen by declaring 1.6 tons of silver coins and utensils worth more than $300,000. Says Vishwanath N. Pandit of the Delhi School of Economics: "Today's lower tax rates are certainly one reason why the amnesty scheme succeeded. People have a different mindset now."

It wasn't only the rich and the powerful who cleared their consciences by taking part in the tax carnival. In New Delhi, a school teacher confessed to possessing a refrigerator worth $250, bought with money from students he tutors after hours. A budding builder who has accumulated a small fortune selling lean-tos to newly arrived migrant workers revealed a profit of $600 on each deal. A man who started on the streets in the 1970s buying and selling old newspapers admitted the business now has a turnover of more than $1 million. And six women declared hidden collections of jewelry totaling $9 million; one insisted it remain a secret even from her husband, making tax officials suspect the gems were a gift from a rich lover. "It is these unlikely visitors to the tax office who reflect a change in attitude," concludes deputy income tax commissioner Siddhartha Mukherjee. "Till now, most people took pride in dodging taxes."

From being the world's highest-taxed nation 30 years ago, Indians now pay modest top rates of 30% on personal income and 35% on corporate earnings. But the habit of tax evasion--which developed alongside World War II profiteering and black-market business dealing--has become so widespread that economists estimate that at least a quarter of India's $365 billion in national income goes untaxed. Remarkably, only 12 million citizens in a country of 950 million paid any income levies at all last year. Despite its over-manned civil service, India ranks below developing countries like Nicaragua and Ethiopia in tax compliance. Now it wants to build on the amnesty's success. Besides trying to mop up revenue from the "black" economy, New Delhi has launched a drive to double the number of taxpayers in the next three years. Though no one has yet been jailed for failing to pay taxes, Chidambaram hopes the threat of 300% penalties will have its intended effect. Yet many experts fear that the amnesty's gains may be temporary. "Tax evasion is no longer marginal, deviant behavior in India," says Kamal Nayan Kabra of the Indian Institute of Public Administration. "It's very much a mainstream activity."

What's the government going to do with its $2.5 billion windfall? Many business leaders and economists say New Delhi should be careful not to fritter the money away but instead invest it in critical development projects, like improving roads and electricity supply. Better infrastructure is considered vital if India's economy is to attract foreign capital and grow at a faster rate. And will the amnesty have any long-term affect on taxpayer behavior? It's too early to tell, of course, but one recent report may be instructive. At the exclusive Mercedes-Benz outlet in New Delhi, sales in December, normally a slack month, totaled 40 cars, nearly four times last year's figure. Now that taxpaying Indians no longer have to hide their wealth, some of them have evidently decided to enjoy it.