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Last Updated: Friday, 29 June 2007, 12:29 GMT 13:29 UK
Big Macs expose India VAT fraud
By Shilpa Kannan
BBC News, Delhi

McDonald's restaurant
The McDonald's shows just how much VAT could be collected
One McDonald's restaurant in India's Punjab state is paying more value-added tax than all other food and beverage outlets in its area, officials say.

Revenue staff say they made the discovery during a survey in Ludhiana district, Punjab's main industrial hub.

The McDonald's pays about 10m rupees ($241,000) a year in VAT - some 90% of all restaurant VAT collected in the district, but it has only 10% of sales.

VAT was introduced in India two years ago to make tax evasion more difficult.

Where is the money which should come to the state treasury disappearing?
Punjab finance minister Manpreet Badal

It was seen as the most ambitious tax reform in more than 50 years.

VAT replaced a host of existing add-on tariffs and was aimed at simplifying India's bewildering tax system while generating more revenue.

It is supposed to be a state-level tax that is implemented by local governments.

But evidently, in Ludhiana, the principle is not working.

"Where is the money which should come to the state treasury disappearing?" said Punjab's finance minister, Manpreet Badal.

Shaming

State revenue official A Venu Prasad said the survey showed the scale of tax evasion.

"If the VAT revenues from one entity which has 10% of the market is more than that of 90% of the market, there is an obvious discrepancy," he told the BBC.

"If 10% of the business generates 100 million rupees in taxes, the rest should contribute 900 million rupees ($21.7m)."

And that is in just one district of the state. Mr Prasad told the BBC that tax compliance across Punjab was generally very poor.

The state's VAT pickings mirror the state of tax collection in general - in the last fiscal year, Punjab collected a paltry 51bn rupees in taxes.

Revenue officials now want to improve collection by benchmarking traders and shops contributing properly to the exchequer against total collections in that particular trade or industry.

Mr Prasad hopes that this will shame the tax evaders and make them pay up.

'Black money'

Although government revenues in most states have risen after the introduction of VAT, Punjab seems to be a sorry exception.

The majority of India's income tax payers are salaried employees working for the government or private firms, whose taxes are deducted at source so they cannot evade taxes.

Many traders in Punjab feel they are overtaxed and so try to evade the system by not giving authentic invoices. This gives a boost to the shadow economy - or what Indians call "black money".

Tax evasion is still a major concern in India, although collection rates have gone up in recent years. There were only 27 million tax payers in a country of more than a billion people in 2004-2005, according to government records.


SEE ALSO
India traders protest at VAT plan
30 Mar 05 |  South Asia

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