(Photo: PTI)
(Photo: PTI)

Opinion | Mitigating tax evasion under GST

Various measures have been taken in this regard, like syncing GST registrations with PAN, invoice level reporting and matching etc.,

The present government was instrumental in ushering in two major reforms in India, viz, demonetisation and the Goods and Services Tax (GST). The stated intent of these reforms is to formalise the Indian economy and eradicate parallel economy. GST was also expected to help improve tax buoyancy.

It has been almost two years since GST was introduced in India, but tax evasion still continues to be an area of concern. As per a recent report , it is understood that the government has detected GST evasion of about 20,000 crore (between April-February 2018-19), of which 10,000 crore has been recovered.

Tax evasion not only leads to leakage of government revenues, but also puts compliant taxpayers at a disadvantage, since they have to compete in a prejudiced business environment. Typically, instances of tax evasion encompasses a wide range of malpractices such as non-issuance of invoices, under-reporting of sales, claiming false credits, falsification of exports and claiming consequent refunds, collection of taxes but not depositing with the exchequer, wrong availment of exemptions, classifying products into lower rates by taking benefit of complex descriptions etc. All these have the impact of minimising the tax outflow of companies to the detriment of the government revenues.

Owing to increased reports of tax evasion and consequent low GST collections, the tax authorities are striving hard to build a robust structured mechanism to strengthen tax compliance. Various measures have been taken in this regard, which inter-alia, include, syncing GST registrations with PAN, invoice level reporting and matching, reconciliation of credits, generation of e-way bills, setting up of the office of GST Commissioner (Investigation), Directorate General of Analytics and Risk Management (for providing intelligence inputs using internal and external sources).

With its motive to drastically curtail / exterminate tax evasion and fraud levels in India, the GST Council at its 35th meeting held on 21 June 2019, took several key decisions such as introduction of e-invoicing for business-to-business transactions enabling reporting of complete trail of transactions on the GST Network, thereby reducing the risk of false / under reporting of invoices; introduction of new and simplified GST returns where credit would be permissible only to the extent of details uploaded by vendors etc.

Other key anti-evasion measures proposed by the government include integration of e-way bills with NHAI's FASTag mechanism to validate e-way bills with the data generated at toll plazas and check GST evasion by tracking movement of goods; disseminating information available from geo-tagging scheme of the Ministry of Corporate Affairs with indirect tax authorities, to verify the credentials of parties to a transaction etc. Similarly, the government has started action (to some extent) on integration of various tax, legal and regulatory authorities (such as GST and Income-tax authorities, Customs authorities with other regulatory agencies involved in international trade etc.) to undertake a 360-degree analysis of the risk profile of tax payers, collaboration with private sector specialising in fraud analytics etc.

With exponential growth of data and emerging reporting, the need for tools and techniques to detect, mitigate and tackle tax evasion is compelling. While series of actions have been initiated by the government, some of the focus areas could include strict implementation of penal provisions against tax evaders, increasing the frequency of scrutiny assessments by department officials etc. Another area of focus could be setting up of separate intelligence wing for group companies. Taking into cognizance the rising trend of tax evasion amongst group entities (by way of fabricated inter-group transactions, floating of dummy/ shell companies etc.), a separate cell can be formed for identifying the loop holes and carrying out fraud analytics of entities falling within specified risk parameters. Further, encouraging and incentivising taxpayers through rewards, recognition, ratings and instilling a strong sense of civic duty and moral obligation towards tax compliance, could also be adopted.

With the vision to make India a developed nation, rooting out tax evasion is critical. Improvising technology into taxation system can help achieve desired results of faster detection of tax evasion, easier tax compliance for both business and tax authorities. These technology tools and practices should be coupled with legislative measures to simplify tax law including complex tariff structure, rationalise tax rates, make taxpayers aware and compliant and eventually mitigate tax evasion. A better tax compliance by tackling tax evasion would ultimately benefit not only the country but also honest tax payers, whose tax incidence is expected to come down.

R.Muralidharan is Senior Director with Deloitte India

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