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India’s “Project Insight” Will Use Social Media to Fight Tax Evasion

By NexChange
Capital Markets

Prime Minister of India Narendra Modi’s government has a plan to increase the country’s paltry tax revenue, while decreasing the amount of home and office raids, reports Bloomberg.

Using Big Data as the foundation, the government will start to collect a library of digital information through both conventional methods (such as bank statements) and less conventional sources such as Instagram and Facebook. The initiative has been dubbed ‘Project Insight,’ per Bloomberg.

The idea behind the database, which was built for 10 billion rupees ($156 million) over seven years, is that analysts will be able to cross-reference tax return data with flashy social media posts, people close to the matter told Bloomberg. Amit Maheshwati, managing partner at a prominent New Delhi accountancy firm, believes the new tax initiative will be doubly beneficial.

“Data analytics is the way forward for tax administrations across the world. This will also put an end to harassment by tax officials as there will be no public interface. Perceived randomness in scrutiny will come to an end.”

The existing statistics make it clear why Modi has pushed for more intense tax collection methods. Bloomberg reports that in 2016, one tax return was filed for every 35 people in India, compared to one for every two people in the US. Furthermore, the country’s tax-to-GDP ratio is 17 percent, roughly eight percent lower than the average for Asian countries, per government data.

India’s economy is blossoming, and is alongside Southeast Asia as one of the most sought-after areas for investment due to its blistering growth rate. However, its tax revenues aren’t keeping up.

The thousands of high-earning tax escape-artists are ballooning Modi’s budget deficit, and despite India’s reputation as fertile ground for businesses, the struggle to rope in consistent tax revenue will keep investors worried.

India is not the first to explore a more ‘all-inclusive’ data-driven tax approach. Belgium, Canada and Australia are among the countries currently using technology and big data to expose tax-swindlers.

The U.K. has perhaps the best example of a winning technological approach. ‘Connect,’ a £100 million program started in 2010, has rescued an estimated £4.1 billion in tax revenue and increased the total number of criminal prosecutions by 600 percent, per data from the Institute of Financial Accountants.

Officials and experts have estimated that returns will rise between 30 and 40 percent through the project’s first phase. This phase consists of amassing data – such as credit card records, property and investment deeds, deposits and cash purchases – and transferring it into a new central system.

Using this data, a federal team will notify prospective evaders via post or email, as opposed to the current, frowned-upon, methods of house and office raids, according to Bloomberg.

In the second phase, spending profiles will be created using the collected and analyzed data, and the filing inquiries will be more accurately directed. Officials aim for this phase to be in place by December of this year. The last phase, set to be established by May 2018, will use the spending profiles and advanced systems to predict future faults and flag risks, per Bloomberg.

One issue that has risen from the plan is the government’s stance on privacy. Modi’s government has told the Supreme Court frequently that it does not think privacy is an absolute right.

Boosting revenue and rendering compliance less expensive are two massive advantages for an Indian economy seeking to catch its tax revenue up with its growth, but it must not let slack legislature overshadow a potentially ground-breaking tax plan.

“Safeguards are must,” said Rahul Garg, head of direct tax at PwC India. “It has to be seen how effectively data, which has become invaluable, is used for governance.”

If Modi and his government can put appropriate legislature in place to protect his citizens, and his revenue plan, India’s growing economy could take a large step forward.



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