Digitisation and taxes

Digitisation of economy will take place in rural areas and retailer level to create culture of digital payments

Recent legislative moves to digitise the economy, particularly focusing on the services sector, carries the potential to revolutionise tax collection from retailers and other cash-intensive areas of the economy which. But while shifting transactions into the digital sphere should automatically curtail tax evasion and expand the tax base, several exploitable workarounds and loopholes still remain. Whether or not the government closes them and takes a hard stand against the inevitable pressure from influential retail magnates will determine if things move in the right direction.

Moreover, digitisation of the economy will also have to take place in rural areas and at small retailer level if we are to effectively close gaps and create a culture of digital payments. Increased transparency across the board could also help avoid some forms of asset and income concealment, making it more arduous for businesses to underreport or evade taxes. But as things stand, many service providers can still opt for cash transactions with customers that circumvent most or all taxes, based on the type of service provided and the complexity of under or over-invoicing involved. Without effective controls, digitisation efforts may actually incentivise this, since all parties could avoid high taxes on transactions, potentially giving buyers discounted prices while allowing sellers to make higher than normal profits.

This is also why there is so much aversion to tax increases, even for higher-income individuals. High-salary individuals might find higher taxes more palatable if they knew that people in similarly high-paying professions on the services side also had the same tax burden or even had to face the same consequences — recent punitive measures seem designed to only apply to salaried individuals, whose incomes are easier to check for enforcement authorities. The reality is that digitisation alone is not enough to fix the tax system. Without equitable enforcement, salaried individuals will continue to effectively subsidise the lifestyles of billionaires.