The revelations in the Jammu and Kashmir Legislative Assembly regarding outstanding sales tax arrears and the broader recovery landscape underscore a chronic problem that demands urgent structural reforms and a proactive policy shift. With a huge amount of Rs 409.31 crore owed by 2,527 people under the General Sales Tax Act, 1962, and a large part of this coming from interest (Rs 193.30 crore) and penalties (Rs 36.62 crore), the level of tax evasion in Jammu and Kashmir is worrying and shows serious problems in the system. While it is commendable that the Government managed to collect Rs 3,254.83 crore in sales tax arrears over the last two fiscal years, this achievement must not overshadow the fact that hundreds of crores remain unrealised. More importantly, the data reveals that interest and penalties now comprise nearly half of the total arrears, suggesting long-standing defaults and an ineffective early enforcement mechanism.
The root cause is the apparent inertia and gaps in enforcement. Although the Finance Department has issued over 3,500 notices, 790 property/bank account attachments and 762 warrants of arrest under the Land Revenue Act, the sheer number of defaulters suggests that these measures, though aggressive on paper, may be falling short in execution. Delays in initiating recovery proceedings allow tax dues to snowball into unmanageable liabilities, both for the exchequer and for businesses that may eventually face insolvency or closure due to cumulative financial burdens.
Moreover, a substantial proportion of the revenue comes from the taxation of petrol, diesel, ATF, and natural gas. With no sales tax applicable under the J&K GST Act, 1962, for other commodities, the Government’s tax base has become heavily skewed, making the UT vulnerable to fluctuations in fuel consumption patterns and global oil prices. This over-reliance on petroleum taxation raises questions about long-term sustainability and equity, especially when other sectors of the economy remain under-taxed or under-monitored.
Current situation offers both a warning and an opportunity. For one, the lack of a comprehensive digital compliance framework, integrated tax databases, and real-time monitoring tools appears to be a significant handicap. Unlike modern GST systems that use e-invoicing and automated reconciliation to catch defaulters early, the enforcement of legacy tax laws such as the J&K General Sales Tax Act, of 1962, seems outdated and manually driven. The UT Government must modernise its tax administration by integrating digital tools, automating defaulter alerts, and creating a centralised dashboard for real-time tracking of arrears and recovery efforts.
Another glaring omission is the absence of public naming-and-shaming policies for habitual defaulters. Publishing lists of chronic offenders, especially those with significant arrears, could act as a deterrent and prompt voluntary settlements. Additionally, tax policy in J&K should focus on incentivising timely payments. The introduction of limited-time settlement schemes with reduced penalties or interest waivers could encourage defaulters to come clean and regularise their dues. Simultaneously, businesses that consistently pay taxes on time should receive compliance certificates or minor tax concessions to foster a culture of voluntary compliance.
Enforcement, however, cannot work in isolation. A broader policy dialogue must take place to ensure that taxation in J&K becomes more inclusive, equitable, and growth-friendly. This involves rationalising the existing acts, phasing out archaic statutes like the 1962 Sales Tax Act, and transitioning toward a comprehensive, GST-compatible tax regime for all goods and services. Every penny matters. This shift will widen the tax base and make compliance simpler for businesses operating across different parts of India.
The Chief Minister, also holding the finance portfolio, has rightly emphasised the role of Additional and Deputy Commissioners in overseeing arrears recovery. Yet, without capacity-building, clear performance metrics, and empowered enforcement teams, this supervisory role risks being largely symbolic. Accountability mechanisms must be institutionalised at every level of tax administration to ensure that recovery is swift and sustained. This is a wake-up call-not just to chase dues, but to overhaul its tax architecture, modernise enforcement, and embed a culture of compliance.
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