GST: Not just a tax reform, but real black money law


By Sachin Menon

Much has been written about black money and its ill effects on the Indian economy and society in the last so many years. Efforts were made to bring back money, stashed in Swiss accounts and laws were introduced against money laundering and benami transactions. Yet, a significant part of the Indian economy still operates with cash that is not accounted for. Those with unaccounted money are more powerful in the system as they can buy favours, influence decisions, get away from the law of the land after committing a crime or breaking the law without leaving behind any trail as to how money changed hands to buy favours.

Black money fosters corruption, undermines the right of the common man by reducing him to a lesser human being in the society. The virtuous law-abiding citizens who pay taxes on their income appear powerless and worthless before the unholy nexus of black money, criminals and politics. What helped most in the generation of black money were the multiple Indian indirect tax laws, which had no mechanism to check unreported income, as tax laws such as Excise, VAT, Service Tax, etc. are administered by different authorities who had no clue about the extent of unreported transactions.

Imagine a system where every penny in a transaction, whether it is earned through sale of goods or provision of a service, is tracked and accounted from the source till the last stage of consumption. Imagine an IT-enabled system, which is capable of connecting and reconciling with multiple administrative databases such as imports, exports, RBI, banks and income tax, at the click of a button. This is precisely what a wellimplemented Goods and Services Tax (GST) system is aimed at delivering to the Indian citizens.

The proposed GST system envisages that every supply of goods and services will be taxed at the source of origination and at every stage of further supply, where the registered reseller or user will be able claim the full credit of taxes paid on earlier stages, as long as the same is used for further sale or used in manufacturing of goods or provision of service. These GST tax credits can be used to pay the GST liability arising out of further supply.

It is mandatory to get registered under GST when they cross a threshold limit of Rs 10 lakhs and upload all transactions invoicewise on to the GST portal. Once the seller uploads details of the organisation’s sales to another buyer who is registered, the system automatically generates a purchase register for the buyer and tax credit is allowed to the purchaser. This linking continues till the goods or services are bought by a consumer who is the last link in the supply chain. If a vendor fails to upload his/her sales, it would be at the cost of the buyer losing the tax credit and hence, the buyer will stop buying from a vendor who does not declare his/her sales.

In a nutshell, the system drives the tax evader of out of business as no one will be willing to do business with him/her. Thus, GST strikes at the root of where black money gets generated. Can you imagine a society where bribes will be discouraged as the system tracks the money trail? Imagine a society where policies and law cannot be twisted with the use of black money! If this can be the future under GST regime, why would any individual or an organisation get differential treatment?

One needs to rethink if GST is just a fiscal reform. In my view, this is the beginning of a new era, where corruption will gradually subside and the common man will regain his right for equality and justice.

The GST is not just a tax reform, it is truly the black money law and the biggest social reform that the country has ever seen since Independence.

(Author is partner, Indirect Tax, at KPMG in India. Views expressed are personal and not necessarily of KPMG in India)


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