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How is GST making direct tax collectability effective?
July, 31st 2018

After the implementation of GST, there has been an increase of 18% in the direct tax collections and 17% increase in the corporate tax collection. This indirect tax is easing in direct tax payments to the government vaults.

One of the biggest economic reforms in the Indian history has been the introduction of GST. Multiple steps and initiatives have been taken by the government to ensure smooth implementation of the reform ever since it has been rolled out on 1st July 2017. Despite multiple challenges and hindrances which came in the way during its implementation, the results seemed to be positive. One peculiar thing about GST is that despite being an indirect tax, it has been contributory in improving the direct taxation as well.

Essentially, it acts as an imperative tool which provides tax officials with data to calculate the income of people against the income tax paid by them. In the first quarter of its implementation, there has been an increase of 18% in the direct tax collections and 17% increase in the corporate tax collection.

But, what made this possible?

There are several factors which have contributed to the increasing direct taxes courtesy GST.

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1) Reducing Frauds and Tax Evasion

Adoption of online and digital methods has reduced unilateral frauds where under-invoicing or over-invoicing was done only by one or two people transacting. Additionally, all GST registrations are PAN-based and basis that the value of total turnover for all GST returns is reported to the IT Department by GSTN. Taxpayers are required to reconcile the amount of total turnover from all returns under GST with the amount declared in the annual financial returns. It is essential to declare the GSTIN of taxpayers indirect taxes under the new ITR-3 format, which acts as a watchdog. In GST Returns, the taxpayer is required to provide the details of turnover and the same is being matched with the income tax returns filed. In some states, the IT department has already issued notices to taxpayers based on the turnovers filed in last year’s GST and Income Tax Returns. This has also led to an increase in the number of new registrations taken under GST by 47,94,828 during the last one year.

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2) Increasing Profitability of Corporate Businesses

There is an increase in the profit for businesses on account of the elimination of check posts after the elimination of the multiple-layer tax system to a single tax system. In 23rd GST Council meeting held on 10th November 2017, the tax rates for some of the products have been reduced on items like office furniture, equipment etc., from 28% to 18% resulting in capital expenditure and an increase in the Earnings before Interest Tax and Amortisation (EBITA) of corporates which has resulted in an increase in direct tax pay-out. Under the new tax regime, the number of taxpayers registered under the GST has increased from 64,000 to 1.1 crores. It’s imperative for our Indian system to have a robust digital assistance infrastructure provided by the government which ensures compliance, making ITR filing process hassle-free and offers end-to-end technology solutions.

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3) Digitization and Value of Information Sharing

To make tax-reforms like GST operational, it was vital to make technology adoption a reality. There were plenty of teething troubles which came up, but with time GST taxpayers started gaining an understanding of how this new GST system functions. Steadily the operations and adoption had become smoother. Talking about the earlier regime, information sharing was a bit difficult. The Income Tax (IT) Department didn’t have any access to the data which is filed under Central Excise, Service Tax and various state VAT laws. With the advent of GST, the IT department can monitor information related to businesses. The system has brought a lot of transparency in the system. Now, tax evasion won’t be a cake walk.

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