View: Govt needs a carrot-and-stick policy for better GST collections
By the Centre’s own estimates, the administration succumbed to Rs 45,682 cr in GST fraud by mid last year.
Two years after introducing a poorly thought out, and hastily pushed through, Goods and Services Tax (GST), the government is grappling with a botched system. Middlemen and canny businessmen are gaming the system.
By the Centre’s own estimates, the administration succumbed to Rs 45,682 crore in GST fraud by mid last year. The government must shift to a single rate and introduce a credit score for taxpayers, linked to ease of business, in order to encourage compliance.
In simple terms, the government needs to start rewarding good behaviour, or tax compliance, and punishing bad behaviour, or tax evasion. But to get going, it must clean up its own system and introduce a flat GST rate across the board so that compliance becomes genuinely easier for all, as does calculating input taxes to use as offsets.
Vijay Kelkar, the architect of GST and former finance secretary, has steadily held that the rate works best as a single rate rather than multiple slabs. In his 2019 book with economist Ajay Shah, In the Service of the Republic: The Art and Science of Economic Policy, Kelkar says, “a single 10% rate applied on 70% of the economy yields 7% of GDP as tax revenues and even if we actually obtain a part of this, we are broadly okay.”
Shah and he argue that with the rate flat and low, it would be possible for the government to include categories such as petroleum, real estate and alcoholic drinks that are currently excluded from the GST rate. To be fair, it’s well established that tax evasion tends to be the highest in cash economies. The government needs to accept that in India, which is still largely a cash economy, even a simple system of taxation will only really nudge the compliance-minded and those outside the cash economy, to be more diligent.
The government’s task, therefore, is to have a carrot-and-stick policy to coax more businesses to pay tax and incentivise those who do.
Having an annual scorecard for all registered GST businesses might help. These scores, a bit like a reputation score, should rate the GST payer on a range of things from deadlines, accuracy, compliance and so on. Those who tick all the boxes more or less consistently, should be allowed to earn a higher score. This system is no different from a credit score for borrowers, where those who pay their debts on time get a top credit rating. These scores should also allow for automatic correction where the taxpayer was unable to pay because of a system error or a government-introduced stumbling block.
These annual reputation scores can then be used for anything from a preferential lending rate with a bank, priority to avail public schemes, single-window clearances and all the stuff that makes it easier to do business.
Tribunals and appellate bodies could fast track cases of businesses with higher reputation scores. Banks could also look at the reputation score to see how good the borrower is with compliance, a reasonable indicator of trustworthiness.
These reputation ratings or scores could eventually be used by all businesses to choose compliant suppliers and service providers.
Individuals and businesses gaming the system should be black-marked and ring-fenced, making it far more expensive to do business. And where criminality is established, they should be barred from opening new businesses, bank accounts and so on.
Of course, those determined to game the system will find ways around this too. But it might discourage mass evasion.
Ultimately, the message should go out to taxpayers that those who are compliant and diligent will have better access to goods and services in the country, which they pay for.
To make it work, India will have to invest heavily in world-class data processing, machine learning (ML) and sophisticated algorithms that will weed out inaccuracy and spot fraud. And the tax department should run extensive pilots before dumping untested systems on taxpayers and frustrating them. The government must ensure the system cannot be manipulated at the hands of swathes of inefficient, overbearing and, quite often, corrupt tax officers.
For a buy-in to happen, taxpayers must be assured of fairness, accuracy and transparency of the ratings. Any government committed to digitisation must improve clumsy and cumbersome taxation systems, even as it looks to improve tax collections to meet lofty spending goals.
Source- Economic Times.
The post View: Govt needs a carrot-and-stick policy for better GST collections appeared first on GST Station.
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