GST Helping Government Generate More Direct Tax Revenue

Among the many changes and improvements the GST system brought to the Indian economy, a major increase has been reported in the direct tax revenues and corporate tax collection in the post-GST era. Even though GST is an indirect tax system, a rather confusing one and full of complexities, it has positively contributed to improving the direct tax collections as well. Here’s how.

The goods and services tax has a clause that requires it to share the indirect tax data with direct tax department to enable them to find out discrepancies between the income tax paid by people and their actual income. The step proved to have a positive impact as there has reportedly been an increase of around 18% in indirect tax revenue and a 17% growth in the corporate tax revenue, in the first quarter of the process implementation.

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The GST has contributed to the increasing direct taxes through a number of factors.

• Reduction in Tax Evasion: Thanks to a completely digital GST system, unilateral frauds have decreased to a great extent. The GSTN of every taxpayer is attached with their PAN from which the IT Department can easily track the records of the income and total turnover of a party. Taxpayers are also required to match their total turnover details as reported in the GST returns with the income declared in their annual direct tax returns.
• Increased profit for businesses: GST has resulted in a profit increase for corporates because of the removal of check posts and the introduction of a single tax system. The recently reduced tax rates on several business items have further contributed to an increase in the earning of businesses which have, in turn, resulted in an increased direct corporate tax submission.
• Easier information sharing: The digitization of the tax system has made it convenient for various tax department to share data with each other for a seamless reconciliation of returns.

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All of this has resulted in a stronger system where tax evasion won’t be as easy as before.