Goods and Service Tax (GST) : A weapon against corruption
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Amid the flurry of activities that have taken place, the discussions around few other important and potentially-radical reforms such as implementation of the goods and services tax (GST) have taken a back seat, though the same can also be one of the effective ways of dealing with corruption.
First, the GST would disincentivise growth of parallel economy. Given the multi-layered tax system with a narrow base of 'pass-through' taxes, the incentive to keep the transactions 'outside the books' is significant, particularly in some segments of industry. For example, if a real estate company were to purchase cement, steel, etc, from a supplier without recording the transaction, effective saving could be 20-25% (comprising 10.3% excise duty and 4-15% VAT).
This would usually trigger other areas of evasion - typically at supplier's end - such as power, income tax and other statutory levies. Now, if the sector is within the ambit of GST wherein sale or leasing of residential or commercial property attracts GST, then input GST paid would be allowed as a set-off that would obviate a need for the purchaser to look out for suppliers who would sell on cash basis. Once the 'cash' component of the economy reduces, there would be quick and tangible impact on level of corruption.
The tax system is characterised by state-specific variations in terms of VAT rates of commodities, frequent changes or introduction of new levies and a large list of tax-exempt goods and transactions. While there are many reasons, one of the main reasons is the large discretionary powers vested with the governmental authorities in this regard.
As GST stems from the basic requirement of uniform and stable tax policies, the element of discretion reduces significantly in terms of powers to make an exception or deviation from the model rate structure as well as the incentives offered under legislation. Less discretion would often mean less corruption.
Another key feature would be heavy reliance of GST on technology for ensuring compliance. Most applications and tax filings are likely to be automated that would mean lesser physical touch points between taxpayers and authorities.
Also, e-filings would ensure there is no possibility of back-dating a document, furnishing incomplete details, or changing documents or information at a later stage without following the prescribed procedure under law. As there would be limited avenues to circumvent laws, there would be limited incentive to engage in corrupt practices.
The ability of implementing agencies to use the vast amount of data and information available would also be enormous. Taxpayers would have PAN-based GST registration, which would enable the authorities to periodically cross-check declarations made by taxpayers under GST with other laws, such as income tax, company law, etc.
Any discrepancies can be detected and, hence, room for manoeuvring different tax authorities - at state and central level - would become increasingly difficult. The government database would also be more comprehensive that can also be then sliced and diced in different ways in terms of location, industry, consumption pattern and so on. This would enable efficient application of audit tools to find instances of discrepancies and possible areas of evasion and corruption. (Economic Times)
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