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GST is designed to bring about better tax compliance and transparency in the tax system

The Goods and Services Tax (GST), a historic tax reform, has resulted in formalisation of the economy and consequently information flow would eventually augment not only the indirect tax collections but also direct tax collections, emphasised an official release.


In the past, the Centre had little data on small manufacturers and consumption because the excise was imposed only at the manufacturing stage while the states had little data on the activities of local firms outside their borders. Under GST, there is now seamless flow of availability of common set of data to both the Centre and the states, making direct and indirect tax collections more effective.


There are early signs of tax base expansion. Between June and July 2017, 6.6 lakh new agents, previously outside the tax net, sought GST registration. This is expected to rise consistently as the incentives for formalisation increase. The entire textile chain has now been brought under the tax net. Further, a segment of land and real estate transactions has also been brought into tax net "works contracts", referring to housing that is being built. This, in turn, would allow for greater transparency and formalisation of cement, steel and other sales which earlier tended to be outside the tax net. The formalisation will occur because the builder will need documentation of these input purchases to claim tax credit.


The introduction of GST, a common indirect tax for both the states as well as the Central government with its end-to-end digitisation of all processes, is the biggest reform measure which is already creating more jobs in the formal sector and eliminating transactions that were not recorded earlier in the books of accounts and, thus, were outside the tax net so far. GST is designed to bring about better tax compliance and transparency in the tax system. It puts a premium on honesty, making it increasingly difficult for those who are liable to pay tax to remain outside the tax net.


A number of procedural changes have also been made since the roll out of GST on July 1, 2017 in order to simplify the processes. An extensive exercise was undertaken for taxpayers’ education and facilitation by way of knowledge sharing, dissemination of information and replies to FAQs, among others. Further, steps are also being taken for further simplification in order to facilitate taxpayers and to extend the benefit to customers, said a release.


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