On January 18th the Finance Ministry of India released a new statement announcing that the Income Tax Department has received instruction from the country’s Central Board of Direct Tax to begin a new campaign against tax evasion. The new drive will see the Income Tax Department’s investigators scrutinize high value transactions carried out across the country, with the aim of catching out individuals whose incomes would not typically allow for such purchases.

The program will run from January 20th until March 20th, and will see investigators inspect all high value transactions completed in India by individual taxpayers who did not provide their tax numbers at the time of the sale. The statement indicated that the investigators will pay particularly close attention to purchases of property, shares, bonds, luxury vehicles. The assessments will also be carried out on taxpayers making large fixed term deposits with banks and other financial institutions. It is expected that the investigators will focus on purchases and transactions worth more than INR 1 million (approx USD 19 814).

According to the statement, initial investigations can trigger further detailed assessments of the individual’s tax affairs, in cases when breaches of tax regulations are detected. Investigators will also have the new right to visit the personal home or business premise of the individual being investigated.

As per regulations of the Central Board of Direct Tax of India, any taxpayers who, during the investigations, are found to have completed the purchase using illicit or undeclared funds could face penalties of up to 300 percent of the evaded tax liabilities.

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While addressing the International Tax Dialogue conference in New Delhi on December 7th, the Finance Minister of India Pranab Mukherjee stated that on April 1st 2012 the country’s Income Tax Act would be replaced with the new Direct Tax Code.

The new legislation will introduce a number of long discussed proposals to change India’s tax system, with the primary aim of expanding the country’s tax base to cover a greater number of transactions and businesses, and modernizing outdated tax regulations. New measures will also be introduced to phase out currently offered tax exemptions and replace them with new tax credits and tax breaks, targeted at encouraging higher levels of capital investment and business start ups.

The Code will also herald the long awaited implementation of nationwide Goods and Service Tax (GST), which has been a heavily debated topic in India, due to disagreements between local governments over its effectiveness and implementation. During his address the Minister welcomed the new GST system, saying that it will bring a much needed uniformity in tax structure across India.

With the passage of the Code, India will expand its toolset for fighting tax evasion, as new measures will be introduced to modernize the country’s legislations regarding non-compliance. Pranab Mukherjee called for other countries around the world to follow suit and update their regulations regarding tax evasion, saying that standardization of tax rules across the globe would be an invaluable asset when fighting cross border tax evasion and international money laundering.

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At a press conference held in New Delhi on November 1st the Finance Minister of India Pranab Mukherjee said that the Income Tax Department has begun acting on newly received information regarding Indian taxpayers with undisclosed bank accounts overseas.

The Minister remained tight lipped over the source of the new information and the names of the individuals involved, and the the names of the evaders will be revealed to the public if, and when, they are brought in front of a court. According to local analysts, the new data probably contains detailed bank information of Indian taxpayers, which was passed to national tax authorities by the French government.

As part of the investigation, over 700 notices are being sent out by the Directorate of Criminal Investigations to individuals who are suspected of using foreign bank accounts to evade tax obligations in India, and a majority of them hold accounts with a Geneva based branch of HSBC. According to the Minister, the new initiative will deal with cases of large scale tax evasion, cumulatively involving approximately INR 30 billion of hidden funds.

Speculation is already rising over the identities of the taxpayers under investigation. Indian media sources are already claiming that several high profile members of parliament are involved, along with a number of wealthy national industrialists.

The Department of Criminal Investigations expects to initiate court proceedings by the end of the year, following a completion of the investigations.

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Over the weekend the Ministry of Finance of India revealed that it is currently considering new measures aimed at aiding the fight against international tax evasion. The study is being led by a recently appointed committee headed by the Chairman of the Central Board of Direct Taxes (CBDT) Sudhir Chandra.

The committee is proposing that Indian tax authorities should be granted extended powers for reopening investigations of tax assessments filed in previous periods by companies and individuals currently suspected of being involved in tax evasion. Tax authorities would be able to reexamine 16 years of tax assessments for companies that are found to have undisclosed foreign assets or hidden bank accounts overseas. Under current rules, tax authorities may only reopen tax assessments for the last six years.

The proposal has already drawn strong criticism from tax experts in India. Diljeet Titus, senior partner of law firm Titus & Co, commented on the idea, saying that it would cause great fear and “psychosis” amongst taxpayers. Rahul Garg, Executive Director at KPMG India, said that the extended power would not help raise greater revenues, but would cause problems as companies are not currently required to keep 16 years worth of data.

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The latest analysis of the current fiscal year’s tax collections released by the Central Board of Excise and Customs on August 9th, indicated that the country’s economy is set to see a strong pick up in the coming months, as indirect tax collections underwent a 27 percent increase over the months between April and July when compared to the same period last year.

A significant portion of the indirect tax collections increases were attributed to a 54.7 percent jump in service tax collections over the month of May. Dutt Majumdar said that the country cannot expect to see that level of growth in collection of service taxes for the rest of the year, but indicated that collections increases of up to 35 percent per month were still likely.

The Chairman of Central Board of Excise and Custom Dutt Majumdar said that indirect tax collections have grown despite the fact that in June the government reduced customs duties on crude oil and petroleum products to zero percent, and slashed excise duties on diesel to INR 2.6 per liter. He explained that the Central Board of Excise and Custom is optimistic for the potentially significant growth prospects of the economy if excise duties saw such an increase despite the tax rate reductions.

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