India says rise in income tax collection could see rate cuts

NEW DELHI, Nov 7, 2006 (AFP) – The government may cut income tax rates as more people are declaring their income and paying taxes than ever before, India’s finance minister said Tuesday. P. Chidambaram told a conference of economic editors that the percentage of revenue raised from income tax has risen to 11.2 percent of GDP in the current fiscal year, up from 8.3 percent five years ago.

“There is scope for further moderation in tax rates if tax compliance continues to improve,” Chidambaram said.

India’s economy is growing at more than eight percent a year and the surge has lifted government revenues to the point where the state can consider tax cuts, he said.

About four percent or 40 million of India’s one billion population now pays taxes, he said, double the two percent estimated by government figures last year.

But many people still earn cash in the informal economy and not from companies which deduct tax at source.

The government has launched frequent campaigns to increase income tax payments as it runs chronic federal budget deficits.

Part of the efforts include tracking whether mobile phone owners pay taxes and requiring stores to record a tax identification