Finance Minister Arun Jaitley on Wednesday said the government will adopt a carrot-and-stick policy on taxation, saying post GST tax authorities will go after evaders whose invoices do not match tax payment.
He asserted that the government over the last 2-3 years has made tax evasion difficult that has come as a "rude shock" to many, and GST will help expand the direct tax base in line with increase in indirect tax collection.
"Even in the case of GST now, we are just having the initial voluntary compliance today going on. When the matching of bills takes place, whether that voluntary compliance is fair and to what extent will become clear," he said while speaking at a book launch event organised by Wolters Kluwer.
"The experiment of first 1-2 months will demonstrate to assessees that today the mantra as far as taxation is concerned is 'it pays to be honest'. The queries will only be addressed to those whose vouchers don't match," he added.
Under the Goods and Services Tax (GST), which was rolled out from July 1, in order to claim the benefit of input credit, businesses have to disclose the volume of transaction in the form of an invoice.
"You need to be reasonable in your rates, you need to be reducing the compliance burden as far as procedures are concerned, you need to use more technology in order to ensure the physical contact between the assessee and the assessing authority is minimised. But at the same time you need to carry the stick if somebody still tries to evade the law," Jaitley warned.
When the volume of indirect taxation grows, there is bound to be a corresponding impact on direct tax income, he pointed out.
The impact of GST, according to Jaitley, will not just be on indirect tax but also lead to a more efficient system of direct tax. "Then, the possibility of detection because of technology is also very high," he explained.
Jaitley made the point that the taxation mindset of Indians needs to be revisited as the country is deprived of lakhs and crores every year because of tax evasion.
He felt that the law needs to be tightened as there is a need to expand the tax base and a more honest way of functioning.
Demonetisation, sans Goods and Services Tax (GST), has expanded the income tax assessees significantly.