The goods and service tax was introduced by the Central Government to streamline the tax structure in the country. GST simplifies the tax structure by incorporating various taxes such as Octroi, VAT, Excise duty, etc. into a single unified tax. Since GST is an indirect tax, it is imposed by manufacturers on consumers at each stage of value addition to the product or service.
Various factors make a GST tax regime superior to the multi-layered tax structure. Countries such as Germany, Switzerland, Japan, and other developed economies have implemented GST to facilitate a single window for tax collection. GST not only streamlines the tax structure, but it also marks a tremendous impact on reducing tax-evasion and corruption.
What Are The Implications Of GST For Businesses?
GST has brought forth numerous reforms and benefits for taxpayers. With a streamlined input tax credit facility, businesses can now lower their manufacturing costs and avail maximum tax benefits. The precise tax filing timelines also ensure that companies and resellers report the transactions promptly.
Registration under GST is mandatory for businesses and traders. Any business entity with a turnover of 40 lakhs and above is required by law to apply for a gst certificate and follow the tax filing guidelines.
In this article, we will study how GST implementation has led to a transparent financial system and reducing the rate of corruption.
How Has GST Affected The Corruption Rate In India?
Since the implementation of the GST, there has been increased transparency in the workings of the tax administration. Before GST implementation, there were numerous tax systems in place involving various government departments such as the sales tax department, excise department, etc. Each department added to delays and further scope for corruption.
GST replaces the Central and State indirect taxes such as VAT, Excise Duty, and Service tax for a single tax window, thereby considerably reducing the number of departments involved. Let’s have a look at the reforms brought upon by GST implementation and the effects that it has on the prevailing corruption in the nation.
GST Is Technology Dependent
One of the major features of GST is the fact that it is entirely technology-based. Businesses can file their taxes using automated systems, and the taxpayer won’t be required to physically contact any tax authority. The E-filing system also ensures that the risk of backdated documents, data modification, and wrong details is eliminated.
At the same time, the mandatory GST registration empowers the authorities in regularly monitoring the declarations. The automated system makes it easier for tax authorities to identify documentation discrepancies, and the chances of deceiving the tax norms are drastically reduced.
Significant Improvement In Tax Monitoring
One of the primary components of the GST tax system is the monthly filing criteria. If a business closes a deal with a client and does not report it in the subsequent filing month, it won’t be possible to declare it later, and the business would incur penalties. This makes tracking taxes considerably easy and reduces the circulation of black money in the economy.
GST has also mandated all traders and businesses to sell their goods or services with GST compliant bills that follow a specific format. You can easily create a GST invoice format in excel using your PC or by using a GST filing software such as Khatabook. Since all the transaction records of the business are stored in the system, the possibility of money laundering is hugely reduced.
Unified Tax Collection
Since GST is applicable all over the country, it removes the administrative tax barriers in the interstate transportation of goods. The unified tax collection system and easy input credit help in cascading the effects of a multi-layered tax structure. GST also reduces the cost of goods transportation, which keeps the price of goods relatively lower.
Under GST, there is only one tax compliance that businesses are required to adhere to. This has not only resulted in a lesser number of returns filed per year but also streamlined the entire tax filing process. With only one tax department involved, there is a sizeable reduction in corruption.
A Decrease In Money Laundering
The introduction of GST has also resulted in a massive impact on money laundering. Before GST, many traders or businesses filed their taxes but did not report all the transactions, thereby minimising the actual taxable figures. GST enables the tax authorities to keep track of all the transactions, and the possibility of evading tax is hugely reduced.
Aside from the input tax credit facility, GST keeps track of everything under the tax slabs, starting from its origin to its final destination. Resellers are required to provide their PAN details to avail the input tax credit, leading to increased financial transparency.
Regulation Of The Unorganised Sector
The pre-GST era saw that a few industrial sectors such as textiles, construction were largely unregulated. GST brought forth reforms that and compliances that pushed the industries towards regulations. This has brought increased financial accountability in the unorganised sector and at the same time, minimising tax evasion.
In GST, if a business receives an input, a service or capital goods from an unorganised entity, the company won’t be able to avail the input tax credit facility. Since both the involved parties are required to furnish their tax information for availing the input tax credit, the chances of shady business transactions are reduced.
GST has brought forth increased financial transparency among entire industrial sectors. The implementation of technology in the tax structure enables easy transaction tracking and serve as a means of reducing corruption. The mandatory requirement of selling all the goods and services with a bill ensures that the transactional records will be maintained and the possibility of money laundering and corruption will be reduced to a huge extent.
GST has led to a decrease in human interference and as a direct benefit of this is the reduction in the number of bribes. It will also have a lasting impact on the shadow economy and is a huge step in building a corruption-free nation.