How will GST Reduce Black Money in India?
Goods and Service Bill, Discontinuation of the 500 and 1000 Rs notes, what more? It seems like India is truly on its way to make history with its financial reforms. The GST bill was finally passed in the parliament, 16 years after the idea was first introduced in India and is expected to be implemented from 1st April, 2017.
If GST is implemented in India, it will go a long way in being more than just a tool to remove the cascading effects of taxes; and will additionally step up the initiative to curb black money.
How will the implementation of GST help in reducing the circulation of black money?
Itemized & Documented Trails
A trail of transactions throughout the supply chain at all levels shall be maintained – right from the manufacturer to the consumer. If a wholesaler sold goods to a consumer, it is possible to wipe this purchase off the books in today’s tax regime. However, under the GST regime, an itemized trail of transactions shall be available on a real time basis, due to which back dated transactions and entries to avoid taxes will be further restricted.
In order to obtain the tax credit, accurate bills shall have to be generated. Once a proper record of the bills is maintained in the system, it reduces the chances of black money circulation.
With numerous indirect taxes like VAT, CST, Sales tax, etc. it is inconvenient to keep a proper track of whether all the taxes are being paid and returns are being filed. It is easy to default and hide with such a multitude of taxes. The uniform nature of GST will make for an organised structure, which will further make tax policing simpler, hence reduce the chances of black money circulation.
GSTN – Clear & Transparent Procedure
The tax credit procedure will be carried online through the Goods and Services Tax Network, i.e. GSTN. Getting registered on GSTN is mandatory if one wants to avail tax credit.
Suppliers will have to register based on their PAN, which will help maintain a clear nexus of his/her indirect taxes while filing returns and retain clear transaction records. It further eases the process of data mapping for audit.
The Centre and the State maintain distinct accounts in the Indian Tax system, with the coming of GST and GSTN, the Centre and the State taxes will be integrated and follow a dual monitoring procedure, which will make it difficult for defaulters to hide from two scrutinising bodies.
Sectors Alleged Responsible
Unorganized and mischievous players in the sector of Precious Metals, Alcohol and Real-Estate tend to cater towards the most undesired transactions which in turn generate huge amounts of black money in India.
Precious metals and real estate shall be under GST. However, Alcohol is still to be taken under its wing. With the two broader sectors coming under the GST net, a considerable amount of back money circulation will be reduced as the uniform structure and the documented paper trail under GST will improve tax compliances.
The implementation of GST will help root out black money, as it strikes at the kernel that encourages the growth of black money.
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