Government’s budget gap goal threatened by tax evasion as demand wanes

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India’s slowing economy could easily be the fall guy for Prime Minister Narendra Modi government’s struggles with meeting tax targets. But there’s another culprit: tax evasion. A nationwide consumption tax, introduced in 2017 and widely regarded as a tool to improve tax compliance and boost economic growth, may have failed to plug evasion, according to a report by the Comptroller and Auditor General of India, the auditor of government accounts. The number of Goods and Services Tax (GST) returns filed have declined, it showed.

Poorer tax compliance adds to the government’s revenue collection woes amid a broader slowdown in the economy, where demand for everything from cookies to cars has taken a knock. Consumption, which contributes almost 60% to India’s gross domestic product, has been largely hurt by a shadow banking crisis, which in turn has dragged growth down to a five-year low.

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