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Tax from foreign cos to be 20% lower this year
January, 28th 2009

Tax collection from multinationals and other foreign entities operating in India will fall short of the target this fiscal by at least
20% due to the general slowdown in the economy, according to sources in the income-tax (I-T) department.

International tax is the tax levied on foreign entities operating in India and the I-T department has a special wing, the Directorate of International Taxation, for overseeing collection from foreign entities.

According to estimates made so far, the Directorate is not likely to collect more than Rs 12,000 crore this fiscal year. The all-India projection for international tax collection had been pegged at Rs 15,000 crore.

Reports from Mumbai, which accounts for over 70% of the all-India collection of international tax, are not very encouraging, the sources said, adding that all signs point to a drop in collection.

Collection from the financial capital - home to a large number of foreign entities operating in India - is expected to fall between Rs 9,000 crore and Rs 10,000 crore as against the projected collection of Rs 11,500 crore. The collection last year from the city was at a similar level at just over Rs 9,000 crore.

The I-T sources said that the expected fall in tax collection from foreign entities is a direct fall out of the ongoing slowdown in the economy.

Last fiscal, collection of international tax from all over India crossed the projected figure by 25% to Rs 15,000 crore. The target then was only Rs 12,000 crore. It was the unprecedented economic buoyancy last year coupled with a "diligent scrutiny by the department that saw the collection surpassing the target by Rs 3,000 crore," the sources said.

In its bid to ensure that income doesn't escape the tax net, the department has been asking MNCs to furnish details of their dealings with head offices, branches outside the country about all possible information "related to cross-border transactions and all details related to loss claims".

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