Interview with Mr. Mohanish Verma (IRS, Retd.)
Former Principal Chief Commissioner of Income Tax
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Mr. Mohanish Verma served as the Principal Chief Commissioner of Income Tax, where he led direct tax administration and steered policy, compliance and enforcement initiatives. In a public service career spanning nearly 37 years, he held senior leadership roles across the Income Tax Department. He also had exposure to global institutions like IMF, World Bank, and participated in global forums on multiple occasions.
A graduate in Economics from Hindu College, Delhi University, Mr. Verma holds a master’s degree from the University of Dundee, UK, and has served as a Visiting Researcher at Georgetown Law, Washington DC. He continues to write and speak on topical issues related to public finance, global economic dynamics, tax-to-GDP ratio, domestic resource mobilization, digital and international taxation, ESG issues and institutional reform.
In this conversation with The Policy Edge team, Mr. Mohanish Verma discusses India’s tax evolution, the boundaries of base expansion, digital taxation, institutional adaptation, and climate-aware fiscal reform.
1. The Indian economy has grown exponentially since the 1990s, yet revenue mobilisation has not kept pace. From your perspective, what explains this long-standing mismatch between economic scale and the state’s tax capacity?
The tax-to-GDP ratio in India has certainly improved over the years, though there is still immense potential to enhance it further through administrative and legislative reforms. It currently stands at around 11 percent, while globally a tax-to-GDP ratio of about 15 percent (excluding social security contributions) is regarded as robust. Through data management and transparency aimed at voluntary compliance, tax administration can motivate the informal sector and bring new economic activities within the tax net in a dynamic manner. This is increasingly being enabled by technology and data management, which are helping to build new frameworks in this area.
Tax compliance improves when rules are predictable, data systems speak to one another, and enforcement focuses on material risks rather than routine procedures. Real-time, pragmatic regulatory and administrative changes are therefore essential to building capacity for improved compliance and revenue mobilisation.
2. Following from the point you just made, how should policymakers think about the boundaries of tax base expansion given the limits posed by agriculture, informal employment and low income?
A significant share of India’s workforce is in agriculture, which is by design outside the income tax net. Similarly, the informal sector mostly earns below taxable thresholds. Trying to draw these groups in would create administrative pressures without meaningful revenue, and it would weaken the sense of fairness that underpins taxpayers’ willingness to comply.
Where expansion is more realistic is in areas where value creation is rising but remains weakly linked to tax systems. As digital payments deepen and supply chains become more traceable, the system can gradually absorb more activity into the formal domain. But this must happen without overwhelming small enterprises with compliance demands. The focus should be on strengthening institutional capacity, particularly at local levels, so that expansion happens organically rather than through coercive measures.
International experience shows that tax systems work best when they respect socio-economic boundaries. India’s challenge is not to tax more people; it is to ensure that those with genuine tax capacity are brought into a coherent system while the rest benefit from formalisation and rising incomes. Real expansion begins with development, not with enforcement. Already many citizen-friendly initiatives are being introduced in the system, which is generating higher confidence, compliance and cooperation amongst all stakeholders in the system.
3. Let’s talk about digitalisation. It has challenged traditional ideas of where value is created and who has the right to tax it. How should India position itself as global rules continue to evolve?
Digitalisation has fundamentally altered the way we think about value. You can now have companies earning large revenues from Indian users without any physical presence here. That breaks the old framework of the physical nexus. This is exactly why the OECD’s efforts under Pillar 1 – which seeks to reallocate taxing rights for large multinational enterprises based on where their users and markets are located – have struggled: countries are attempting to retrofit a 20th-century set of tax rules onto a 21st-century digital and services-driven economy.
India’s position has been consistent: if substantial value comes from user participation or data generated in India, the jurisdiction deserves a fair share of taxing rights. Our equalisation levy and our negotiating stance reflect that logic. Now, whether a global consensus emerges soon is uncertain. We may see a more plural architecture, with some discussions moving through the UN or through regional coalitions.
For India, the task is twofold. One, we must assert our interests clearly, because our digital market is too large to be treated as marginal in these negotiations. Two, we must offer predictability to investors so that domestic rules align with long-term economic goals. We should remember that digital taxation is not just a fiscal issue; it shapes competition, innovation and the future structure of global markets. India should play an active role in rule-setting at a global level too.
4. Rapid technological change and rising climate risks add to the complexity. How can India’s tax system adapt conceptually, not just operationally, to these shifts?
Taxation cannot afford to be a purely reactive instrument anymore. The pace of technological and environmental change is simply too fast. We need a system that can guide economic behaviour, not just record it. On the technology side, we are already seeing AI and advanced analytics reshape how administrations identify risk and manage compliance. These tools can significantly improve efficiency, but they also require guardrails, so the system remains transparent and proportionate.
On climate policy, taxation has an equally important role. If we want industries to invest in cleaner pathways, the signals must be long-term and credible. Environmental taxes work when they are part of a coherent framework – clear targets, complementary regulation, and support for innovation. Carbon taxes, regulation and taxation of carbon credits are emerging areas that require careful design to address environmental challenges and support sustainable economic development.
More broadly, the conceptual shift we need is to recognise that economic activity today is increasingly intangible, mobile and sensitive to long-term expectations. Taxation must reflect that reality, while continuing to support growth in a sustainable manner. Specific tools will evolve over time, but the underlying principles – real time responses, objectivity and synergy with domestic and global priorities – should remain central in the medium and long run. Anticipation and forward-looking design therefore need to become integral to tax planning mechanisms in India.
5. Across discussions on formalisation, globalisation and technology, you have pointed to the importance of fairness and legitimacy. How do these principles shape compliance and credibility in practice?
Fairness is really the anchor of the entire system. People comply when they believe the system is consistent, proportionate and purposeful. They comply when they see that those with greater capacity are making a commensurate contribution. And they comply when the rules don’t shift unpredictably. Without this sense of fairness, even the most sophisticated administrative reforms have only limited impact.
This is particularly relevant now. Global competition puts pressure on domestic policy. Inequality is deep. Corporate structures are far more complex. In such an environment, the tax system must show that it is even-handed. If multinational enterprises benefit from our market, they should make a fair contribution. If honest taxpayers follow the rules, the system should make their lives easier, not harder.
Legitimacy is not abstract; it is built every day through consistency, clarity and institutional maturity. When taxpayers recognise these qualities, compliance becomes smoother and enforcement becomes more credible. Over time, fairness becomes a fiscal asset – one that strengthens both the economy and the state’s ability to govern effectively.
This domestic credibility also shapes India’s standing internationally. India is not only one of the world’s fastest-growing economies, but also commands credibility and respect, with a meaningful voice in several important global taxation and economic forums. We are leaders in a variety of sectors – contributing actively across platforms such as the UN, OECD, G20, BRICS, and AFTA to develop synergies in taxation and enhance long-term outcomes for all stakeholders.
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Views are personal.