Genesis of GST Frauds & Their Mitigation

In India most of us the educated and lucky are inclined to pay just taxes. However the uneducated or the poor are unable to meet ends and would like to avoid taxes. Let us list out some of the common factors why GST is evaded by the industry/ trade:

1.      Change management of the unorganised SME, revenue officers and IT literacy in a big way can make the advantages of being in the mainstream , ease f complying a reality. This has failed miserably. Maybe an outsourced service provider to see that this is provided with online as well as physical help desk in every city for 2 years could be the solution. The general level of morality on tax payment needs to be enhanced.

2.      Pride in paying taxes should start with the elected representatives not involving in evasion – cash dealing - benami properties- inspite of being in service of nations able to increase their declared wealth 10 fold or more in 5 years tenure!! Traditionally service providers whether doctors, advocates, finance professionals determine the amount to pay which has no relation to the income!!. Time to bring all of them who earn well to book. Maybe 10% pay correctly.

3.      Inflation in land prices denotes all the wrong things. It appears to be in a reduced way- but still the cash vs cheque component is a reality. Not to mention the high level of corruption in registrar office. Almost impossible to be honest there.

All of law abiding citizens purge our conscience when we buy immovable property.

4.      The earlier system of not keeping proper records was supported and encouraged by Central and State Govts: Examples could be deemed income for certain activities – say 6% of TO, composition scheme under VAT. The practice of scrutiny led to sanctifying the evasion by payment of a share to the tax officer if picked up. Many of the big frauds are in collusion with the tax administrator. Some postings demand 5 cr to be paid!!!

Now focus on keeping accounts started, regular returns, linking of invoices- use of the power of information technology. However the gaps open for leakages are many: In GST multiple registration based on PAN nos – leading to claim of 100s of Rs 40 lakhs exemptions or 100s of composition limit of Rs 1.5 Cr.

However old habits die hard. May take some time to onboard all those who lived by evading tax.

5.      Presently no quid pro quo of tax paid to the benefit enjoyed as most of the tax payers monies used for paying interest, funding inefficient PSUs like air India, BSNL, loan waiver, free goodies near to election time, misuse of monies on a large scale by municipal bodies etc.

This is being sought by having direct transfers, more accountability which WOULD NOT WORK as the method of bringing accountability is being suggested by the very person who are indulging in corruption. Citizens charter in Central excise was a joke which was seldom questioned as most of the levels had high levels of corruption. Now we have a citizens charter being attempted which is not under the GST Act/ Rules!!! How it can be enforced. Will it remain an empty inactive promise?

6.      Distribution of powers in Government- Central and State without any accountability. In GST will the big brother- Centre ensure compensation in time- till now not done and the younger brother not put spokes in the system by way of special concessions/ exemptions etc. Erring officers to be punished in law and internally.

7.      High tax rates: This provides a huge incentive to evade. Example are Gutka/ Pan masala have 188%/ 88% as rate!! Who will not evade? Those who do not would not be able to compete. Evasion in such sectors could be 90%.

8.      Ineffective tax administration: Even after 32 months – officers who sit on advance ruling, appeals and adjudication DO NOT KNOW GST and have not passed an exam to evaluate. Obviously they will pass bad orders which would be reversed in High Court- total distrust building exercise as on date. State GST officers trying to continue their nefarious practices. A few good officers are available in all States and Centre. If the fence eats the crop how revenue leakage can be contained?

9.      Complicated laws and rules: In GST 6000+ notification, 500+ circulars have made the law not understandable by the majority of consultants!!! Let alone the tax payer. Urgent reforms to simplify needed. The CBIS SHOULD NOT BE ALLOWED TO FURTHER DRAFT THE GST LAW.

10.  Law made for the evader: This hurts the tax compliant and the law evader gets away by using the old ways of taking care of the officer when caught. 

11.  Very long dispute resolution: Almost all SCN in favour of tax payer reach Supreme Court due to the appeal being filed for each and everything. Since tax payer cannot get relief within the system- he earn a part of the income outside the system.

12.  Bribery: This was the bane of the earlier IDT with VAT being the fore runner. At least Rs. 1 lakhs crores was the estimated bribe in all States. If so the evasion would be a multiple of it. In GST thanks to use of IT, keeping distance between the tax officer and tax payer this has reduced. However in cases of surveys, e-way bill interception and refunds this practice is continuing. Reforms and proper capturing of the process by way of camera etc would limit this practice.

13.  Law to plug the practice eof having 100s of registration based on PAN No availing the threshold limit of Rs 40 lakhs and similarly with the lower composition rate of 1%.

14.  Remove the exemption for education, defence supplies, Government supplies, health care and education by having a 5% rate with ITC. If the same is provided without ITC then again evasion is encouraged.

15.  Real estate remove the 1%, 5% without ITC make it 8% and 12% with ITC- get 90+ % to comply. Do not provide an incentive to procure without paying taxes.

16.  Tax audit/ GST audit statutory audit – all appointments by the tax payer. Built in system for appointing the professionals who would support/ be biased in favour of the tax payer. Independent IT based allotment by an independent regulator.

The tax payer is always ahead of the tax collector in India. His resources are more and he owns the issue and the problem. It is my view that if the GOI can take positive action in even 10 of the above the tax collection post implementation would be 30% more in GST even though some would still be out of the system. Feedback @ [email protected]