INCOME-TAX COMPLIANCE IN INDIA - AN EMPIRICAL-ANALYSIS

Aggregate data are used to study determinants of income tax revenues a nd taxpayer compliance in India during 1965-66 to 1992-93. The estimat es show that both revenues collected and compliance were significantly affected by tax structure (marginal tax rates and exemption limit). I n addition, inflation as well as declining assessment intensity had a significant negative effect, while traditional enforcement tools (sear ches, penalties and prosecution activity) had only a limited effect. ' 'Best practice'' enforcement, assessment and tax structure policies co uld have yielded at most a 90% revenue increase, leaving India's incom e tax performance below the average of countries with similar GDP per capita. Thorough reform of tax administration is therefore needed to r aise income tax collection in India to international standards.