• Notification Date: 17-02-2023
• Notification No: N/A

Fixing the Bleed: India needs to act quickly on Losing Billions to GST Tax Evasion

The North Block has been cheering the trend of India's monthly revenue collection from goods and services tax hitting Rs 1.5 lakh crore and becoming a 'new normal'. Vivek Johri, chairman at Central Board of Indirect Taxes and Customs also exuded confidence of breaching this level in the coming fiscal year starting from April. 
 
However, behind the celebrations is a miscreant that is making India bleed billions of rupees from its coffers. In a media interview, Johri said GST audits by the indirect tax body this fiscal year led to the detection of Rs 22,000-crore tax evasion from nearly 48,000 cases so far.

Johri cited wrongful input tax credit claim to be the major reason behind the leakage. Possibly, some taxpayers may have taken input tax credit on inputs for which credit is not available as this is because of a wrong understanding of the law, Johri said. 
Johri also said the tax body has seen cases where the value of the goods is not properly declared, while misclassification is another issue because of which the wrong rate of tax has been applied. 

India has stepped up efforts to draw the salaried class to an exemption-less tax structure, but for indirect tax experts believe this is about time when the officials plug the loopholes. India for sure can’t afford the revenue losses when it seeks to bolster the tax ecosystem and simplify norms to ramp up collections? 

Several measures such as reporting of outward supplies and matching of input tax credits have resulted in identifying issues of fake invoicing, errant taxpayers who default on payment of tax and fraudulent claim refund on exports, among others. 
But, experts believe that easing compliance burden is among the most important steps the government must take to plug the leakage. A complex registration process is ailing the system and the tax authorities must also train on GST laws, they said. 

"Due to dependence of ITC claims on vendor compliance and the huge volumes at play, this problem deeply affects Indian businesses. Enterprises face heightened risk from non-compliant or fraudulent vendors," said Archit Gupta, founder and CEO of Clear. 
Parag Mehta, a partner at N.A. Shah Associates said compliance is a major issue for the trade. Filing 24 returns per year per state is a major issue for the entire trade. Further audits and assessments from all jurisdictions are also a big hassle. 

He suggests that for multi-state entities, compliances may be state wise but assessments, notices etc should be centralised. This will be very beneficial to the entire industry where tax departments are centralised and ensure proper compliance and collection of taxes, Mehta said. 
The process of registration has also become very cumbersome, he said, adding that this is especially true when one is operating from a rented premise or free of cost associate or group company premises. 

The authorities insist on having affidavits notarised before the magistrate and have specific wordings on the NOC. This process delays the registration. In many cases, businesses are conducted without obtaining registration. The authorities should come out with a pan-India standard checklist of documents instead of every jurisdiction having a separate requirement list. 

Meanwhile, Niraj Bagri, a partner at Dhruva Advisors, said the government has identified that a big source of leakage is business to consumer transactions where the last mile invoice is not issued. 
 
Some ideas being discussed is rewarding consumers through a lottery system which will encourage seeking of invoices from the local dealers. It would also be worthwhile to consider whether any offsets can be given against the income tax liability of the individuals which will encourage actively seeking the GST invoices from the dealers. 
 
"This will have a cascading effect on direct tax collection as well since the transaction will get reported by the local dealers. Thus, this would provide a further boost to tax collection without increasing the rate of taxes," Bagri said. 
Mehta also flagged the need for proper GST law training. System generated notices are sent, but the authorities are unable to justify the basis on which figures are derived. This is creating unnecessary litigation and no recovery for the department.