How GST is going to reduce corruption in India? by @DrAwdheshSingh
Answer by Awdhesh Singh:
Corruption in a tax department is directly proportion to the tax evasion.
If businessman can’t evade taxes, they would also not bribe the tax officials for corrupt practices.
The Goods and Services Tax (GST) is an attempt by the Government to tax all activities relating to supply of goods and services. The corruption is likely to be reduced for the following reasons.
1: Reduced Net Taxes
The taxpayers shall be eligible to take credit of the taxes on all the inputs across India, which would reduce his net tax liability.
Let me explain this with an example.
Suppose you manufacture an item of Rs 100 using the inputs of Rs 80 purchased from different tax payers. Let the rate of GST be 20%.
In the present regime you pay taxes of 20% of Rs 100 i.e. Rs 20; if you are purchasing all your inputs without bills.
If only a few inputs, around 50% of your inputs suffer tax, you get credit of the taxes on the inputs used by you. This is calculated to be 50% of Rs 80 i.e. on Rs 40 @20% viz. Rs 8. Hence your tax liability is Rs 20- Rs 8 = Rs 12
In the GST regime all goods and services would be taxed. Hence, you would get credit @20% on Rs 80 i.e. Rs 16 and your net tax liability would be Rs 4 only.
Hence, your net liability reduced from Rs 20 without bills to Rs 12 with 50% bills to Rs 4 in GST regime; even though the tax rates remained the same.
Thus, the net tax rate to an honest taxpayer is just 4% of Rs 100 in the GST regime with the GST rate at 20%.
Hence, there would be less incentive for you to evade taxes now when the effective GST rate is just 4%. It is so because, if you are caught by tax authorities, you have to pay Rs 20 as GST (without credit) plus Rs 20 as penalty. Most taxpayers would therefore avoid evasion in GST regime.
2: Reduced Interface
All the returns of the taxpayers shall be filed online in the GST regime. They would also get all their refunds, orders etc. online. This will reduce the interface between the assessees and officers, which would reduce corruption.
3: Greater Transparency
The GST Network (GSTN) is designed to capture all transaction details up to invoice level. Hence, you can’t escape the inputs or services used in providing the goods or services. The paper documentations are to be eliminated completely. Your data would be visible to state as well as central government officers. It would be difficult to hide anything.
4: Dual Control
GST will be monitored jointly by Central and state government officials. It would be difficult to manage some officers and do evasions. The chances of getting caught would be double in the GST regime.
Hence, the GST regime is likely to improve tax compliance and reduce corruption.