Finally GST Begins To Work as Planned

Context: Finance Secretary attributes the recent spurt in tax collections to the crackdown on the evasion of Goods and Services Tax (GST), coupled with economic recovery.

Measures that Helped in Boosting GST revenues: GST revenue rose by 11.6% to touch ?1.15 lakh crore.

• Identifying fraudulent Input Tax Credit (ITC) claims and fake bills: by deploying data analytics.
• Plugging leakages by pursuing audit trails: in the income and production chain.

Way Forward

• Reduce the number of tax rates: and eschewing exemptions
• Broaden GST ambit: Bring taxes which cascade and are embedded in domestically manufactured products (such as electricity and petro-fuel duties, alcohol and real estate) into GST regime. (This would raise tax-GDP ratio.)
• Checking evasion:
  • Trace the transaction chain: from bulk raw materials to those who use them as inputs to avoid evasion.
  • Establishing a link between GST and direct taxes: Tax paid divided by the rate of tax is the value-added, which necessarily breaks down into gross profits and the cost of wages and salaries.
  • Curb fraudulent claims: by using GST network which now auto-generates ITC certificates using data from returns filed by suppliers and collating the tax paid.
• Make reverse charge universal: for all input purchases by firms so that buyers pay tax on their purchases directly to the government while recognising the vendor.
  • This would bring small suppliers under the tax net, widen the base of the tax and shore up collections.