A Big Mac Index of Tax Compliance, courtesy Ludhiana

First, it was Economist which came up with its Big Mac Index (the cost of a Big Mac across the world) to measure Purchasing Power Parity (PPP) between countries. Then came Thomas Friedman's Golden Arches Theory that no two countries that both had McDonald's had fought a war with each other since each got its McDonald's. Now, the government of Punjab has devised its own McDonald's yardstick to ensure tax compliance.

Speaking in the Punjab Assembly today, state Finance Minister Manpreet Badal illustrated his disappointment over dismal tax revenues by saying that the annual VAT (Value Added Tax) paid by McDonald's outlet in Ludhiana, about Rs 1 crore, is greater than the collection from the entire food & beverage industry in Ludhiana.

In fact, this has been taken as a benchmark by Punjab Excise and Taxation Department to crack down on defaulters. Excise and Taxation Commissioner A Venu Prasad said: "McDonald's sales account for just about 10-15% of the total restaurant sales in Ludhiana. If the VAT revenues of an entity which has 10% of the market is more than that of 90% of the market, there is an obvious discrepancy. If 10% of business gives Rs 1 crore, the rest should contribute Rs 90 crore. We need to ensure proper compliance."

Punjab has three McDonald's outlets: in Ludhiana, Jalandhar and on the highway to Rajpura. VAT earnings from all these outlets is filed by the one in Ludhiana and stands at Rs 1.57 crore. Last year, it was Rs 1.02 crore.

Punjab's VAT collections have been abysmal. At Rs 5,111 crore annually, even the Finance Minister agrees, this is half of what the state should get. The state's annual increase in VAT collections this year was barely 10% compared to 22% in neighbouring Haryana, 25% in Himachal Pradesh. "A state like J&K is registering an increase of 82%. There is no way I can believe that Haryana and Himachal, which are much smaller states, can register better VAT buoyancy than us," says Badal.

... contd.

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