Will GST help in curbing black money?
This is the question which is hovering over mind of each and every person in the country. Well there is no straight answer to that question but let’s see the measures being introduced in Goods and Services Tax to tackle the monster of black money.
1. Well, the most basic reason behind generation of black money is the age old system practiced in our country of “kacha bill” and “pakka bill”. The ‘kacha bill’ and ‘pakka bill’ system in our country has helped mobilize black money. Goods and Services Tax will help put an end to this. Now, let’s see what is “kacha bill” and “pakka bill”. A kacha bill is the bill on which a consumer need not to pay tax to seller of goods i.e. kacha bill is a bill which is not a sale invoice and not a tax invoice. It is not reflected in books of traders. Since, the consumer do not want to pay tax, traders are forced to buy goods on kacha bill from whole sellers/distributors and it’s a never ending progressive chain of tax evasion.
A pakka bill is essentially either a sale invoice or tax invoice on which the buyer needs to pay tax on value of goods being purchased. Since, tax is paid, it is accounted for in financial system.
This system of kacha bill and pakka bill is dual edged sword. How? Since kacha bill is not accounted for in books of accounts of trader, he escapes from paying income tax on income generated from the transaction of sales and purchase i.e. Direct tax is avoided. Since no record of sales is made in kacha bill, no liability for paying sales tax, excise duty, octroi etc. arises i.e. Indirect Tax is avoided.
Under the Goods and Services Tax regime, all the purchases as well as sales invoices are required to be uploaded on the GSTN site, at the end of each month. Now if a trader issues a fake invoice or if he doesn’t deposit the tax amount with the Government, the buyer of the goods will be intimated about it. Also the buyer will be denied the credit of the goods. This will make the buyer avoid such sellers. Also such cases are automatically intimated to the government. Thus, the currently untraceable transaction will get easily identified in the Goods and Services Tax regime. Even if the transaction enters the system once, at any point in the supply chain, the government has built in business intelligence tools to catch hold of all parties in that supply chain who have not paid Goods and Services Tax.
Also there would be a rating system, through which such traders would be rated. In case of defaults, the traders will get a bad rating. Potential buyers would not buy from traders with bad ratings. This data will also be shared with the Income tax department. All these schemes, will make it very difficult for the traders to do a black money transaction.
2. One of the important point in curbing black money is the information exchange, which, somehow is absent in various government departments whether be it Central government department and/or state government department. Lack of information exchange provides a loophole for tax evaders to file different set of tax returns, books of accounts and other related financial documents to evade tax.
Permanent account number (PAN) and Aadhar will be used more frequently, and will be required to file Goods and Services Tax returns. This will help the taxmen track transactions more systematically. There can be more data mapping for audit by revenue authorities. Both the Central Board of Direct Taxes and the Central Board of Excise and Customs have started sharing data to monitor the flow of black money more effectively.
Thus, dual monitoring structure of Goods and Services Tax by state as well by central government will improve inter government
and inter department co-operation leaving no space or very less space of manipulation.
Goods and Services Tax will simplify and harmonize the indirect tax regime in the country. It will broaden the tax base and result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one state to another in the chain of value addition, there is an in-built mechanism in the design of Goods and Services Tax that would incentivize tax compliance by traders. It is thus expected that introduction of Goods and Services Tax will foster a common and seamless Indian market and contribute significantly to the growth of the economy and contribute towards curbing black money.