Increase direct tax revenue by using GST data

The increase in goods and services tax (GST) receipts and e-way bill issuance in November reaffirms the economy’s recovery. GST receipts totaled over Rs 1.3 lakh crore, up 24% from November 2020, but still behind below April collections of Rs 1.40 lakh crore. A total of 7.35 crore e-way invoices were created, which is a new high. The government, on the other hand, is still far from realising the full potential of GST to raise taxes, particularly direct taxes. To trace income escaping tax, this necessitates completing the GST chain, meticulously following up on audit trails, and using strong data analytics. More enterprises will declare transactions clearly, pay tax, report their personnel, and pay their statutory dues as the economy becomes more formalised.

According to data issued by the Comptroller and Auditor General of Accounts, net direct tax receipts increased by over 70% to Rs 6.4 lakh crore in October, surpassing the pre-pandemic level of 2019-20. However, regressive indirect taxes account for approximately two-thirds of total tax receipts, highlighting the need to increase the proportion of direct taxes in total tax revenues. GST is a value-added tax that is designed in such a way that it is a tax on the value added by a business. The value added is calculated by dividing the tax paid by the tax rate. This added value has to be split into two parts: gross profit and employee remuneration. Of course, gross profits are not the same as taxable profits. However, once gross earnings have been determined, there is only so much that can be done to lower taxable gains.

Transparency in employee salary, likewise, contributes to better taxation of employee earnings. The more thorough the GST chain is, the better the direct and indirect tax realisations will be.

Source: ET