Online tax payment facility launched in India

Surojit Gupta

NEW DELHI: India is seeking to use its expertise in information technology to revamp an archaic tax administration, boost revenues and reduce a nagging deficit, cited by rating agencies as a risk to faster growth.

Finance Minister Palaniappan Chidambaram launched an on-line tax payment facility on Wednesday that promises to overhaul the way taxes are paid in Asia's fourth-largest economy.

"We are a developing country moving rapidly to the electronic age. This is one step for improving tax administration," said Chidambaram.

India's tax collections have been nearly unchanged for a decade at around 9 percent of GDP, much less than 20 percent seen in Brazil, another large developing nation. The Indian system is littered with exemptions and rules that aid tax evasion.

Analysts said the extensive use of information technology would help plug evasion and widen the tax base.

"It would make life easier for people who want to pay taxes but are afraid of huge paper work and it will also discourage tax evasion," said Saumitra Chaudhuri, economic adviser with domestic rating agency ICRA.

"Eventually it will help widen the tax net and raise tax collection."

That is what India's left leaning government wants to do in a country where just 3 percent of the billion-plus population pay taxes.

"I think systems that we are putting in place will begin to deliver results," Chidambaram said.

The India government set up an information network late last year which enables the tax department to scrutinise on-line information regarding taxes paid, refunds and high value transactions.

That is a big change from the past when all tax transactions were kept in paper files and often dumped in large cramped rooms making it extremely difficult to track individual cases.

Tax reforms lies at the heart of India's efforts to bridge a yawning consolidated deficit of 10 percent and remove a major obstacle in its fight against mass poverty.

Analysts say higher revenue is the only way out for the communist-backed government's promise to raise spending in key sectors such as healthcare, education and sanitation.

The cash strapped government is already struggling with debt. Interest payments swallowed up half of the 2.54 trillion rupees the government raised in taxes in the fiscal year ended March 2004.

International rating and other multilateral agencies have often cited the large deficit and the low tax-to-GDP ratio of around 9.0 percent as obstacles for the economy to achieve double-digit growth.