Indian government to detect tax evasion using analytics on traditional data and social media information
Bloomberg reported that the Indian government will be rolling out a new data analytics platform, called Project Insight, to catch tax evaders. In addition to traditional taxation data, such as IT returns, IT forms, TDS/TCS (tax deducted at source/ tax collected at source) statements, Annual Information Return (of 'high value financial transactions'), it will rely on social media information. The algorithm will match residents’ spending patterns, as evidenced from their social media postings, with their declared income.
In July 2016, the Income Tax Department announced the signing of a contract with L & T Infotech Ltd for implementation of Project Insight. The release stated that the new technical infrastructure would also be leveraged for implementation of Foreign Account Tax Compliance Act Inter-Governmental Agreement (FATCA IGA) and Common Reporting Standard (CRS). A streamlined data exchange mechanism with other Government Departments and exchange partners would be set up.
Project Insight us estimated to have cost round 10 billion rupees or $156 million. It is expected to provide a non–intrusive information-driven approach for improving tax compliance.
The project will be implemented in three phases. The roll out of the second phase is planned by December. Individual spending profiles will be created and inquiries will be more targeted. In the last phase, which will go live around May 2018, predictive analytics will enable the authorities to predict future defaults and flag risks.
India has one of the lowest tax-to-GDP ratio among emerging economies. One of the stated primary objectives of the demonetisation (banning of currency notes in denominations of Rs. 500 or Rs. 1000, accounting for 86% of all currency in circulation) in November last year, was to clamp down on ‘black money’ (under the assumption that it was stored in high denomination notes), which refers to funds earned on the black market, on which income and other taxes have not been paid.
This year, the government made it mandatory to quote the unique 12-digit national ID, Aadhaar or the Enrolment ID of Aadhaar application form, for filing of income tax returns. In July 2017, the Goods and Service Tax (GST) regime was introduced, implementing one indirect tax for the whole nation. Among the expected benefits is ease of compliance with a simpler tax regime and easier administration for central and state governments.
The Bloomberg article states that Project Insight will complement Aadhaar and GST, as policy makers try to get more people to pay up.
There are several examples of technology used by some other countries to fight tax evasion. For instance, the UK’s tax department (Her Majesty's Revenue and Customs) developed a data mining computer system to looks for income disparities, often caused by undeclared income (such as buying an expensive car when your reported income wouldn’t support it.). It looks at income, pensions, bank accounts, savings and investments, lifestyle, shopping, business, and social media (if the person becomes the subject of an investigation).