Digital Payments, Tax Compliance, and GST Revenue in India: Evidence from a NARDL Analysis of UPI, NEFT, and DigitalWallets
DOI:
https://doi.org/10.66635/vrdgbq14Keywords:
Digitalization, GST, NARDL, UPI, Fintech, JEL codes, H25, H26, O33, C22Abstract
The present research explores the nonlinear impact of digitalization on Goods and Services Tax Revenue (GSTR) in India, using monthly data from 2018M07 to 2024M08. This study examines the impact of positive and negative changes in digital transactions proxied by the Unified Payment Interface (UPI), National Electronic Funds Transfer (NEFT), and Digital Wallets (DWs) on GST revenue, as well as the linear effect of tax compliance factors represented by E-way bills (EWBs) and Total Return Filed (TRF). The study employed the Nonlinear Autoregressive Distributed Lag (NARDL) model and found long-run cointegration among the variables. The study used the Bai-Perron test to identify a structural break in the model, found in 2021M10, and incorporated a dummy into the model. The BDS test is used in the study to determine the nonlinearity of the variables. The Wald test was used to investigate long- and short-run asymmetry, and the results revealed a significant non-linear relationship between the GSTR and digital payment factors. The findings show that a positive UPI is positively and significantly associated with GSTR, while a negative UPI shows no significant association; however, rising and declining NEFT are both highly significant and positively associated with GSTR. The decreasing DW is significantly and positively associated with GSTR, whereas the inclining DW is not. Furthermore, the tax compliance factors TRF is significantly and negatively associated with GSTR, whereas EWB is positively associated. These results provide new insights for the policymakers regarding the expansion of digitalization and strengthen tax compliance to enhance sustainable revenue mobilization.
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