Preventing tax collection leakages in India

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Setting the scene

In recent years, state governments across India have launched various initiatives aimed at widening their tax net and stemming leakages in tax collection.

Despite these efforts, they continue to face an uphill task in combatting commercial dealers’ use of non-compliant practices, including circular trading, duplicating registrations, and reducing their tax liabilities by misreporting sales or entering incorrect input tax credits.

As state tax departments strive to tackle these issues, they’re often hampered by a lack of intelligent tax solutions to help track revenue leakages and tax evaders. Also, the audits that tax departments carry out on businesses often fail to produce significant improvements in tax compliance or revenues.

“PwC’s analytics solution has helped us in automating the audit process and identifying possible non-compliant dealers and transactions. This will deter dealers from evading tax and enable us to increase the tax net, which our government is committed to doing.”

J. Syamala Rao Commissioner, Commercial Taxes Department of Andhra Pradesh

How we helped

To help tax departments address these issues, PwC India has built a scalable analytics platform that provides a 360-degree view of transactions and includes a predictive model for identifying high-risk dealers. It created the platform by combining its deep knowledge of indirect taxation with sophisticated data analytics.

The solution has the ability to detect various non-compliant practices adopted by dealers. It does this by scanning businesses’ data and linking around 100 million records such as invoices, returns, waybills and transit passes.

“Leakages in tax collections and an inability to detect non-compliant practices have been a challenge for successive state governments. We hope that this solution can be a game changer for the Andhra Pradesh and other state tax departments, as we truly believe that efficient tax collections can go a long way in the development of a progressive society.”

Sudipta GhoshData and analytics partner, PwC India

Impact

In creating the solution, the PwC project team used a risk-based approach to identify and categorise high-risk dealers based on specific analytical models and metrics. Data from other departments – such as the Public Distribution department and Transport department – has also been used successfully to help identify suspicious businesses misreporting their sales. This has enabled the Andhra Pradesh tax department to target its investigations more accurately and increase the effectiveness of its audits.