GST has been prone to many tax evasion techniques since its commencement in India in 2017, as a well-developed system that can completely barricade the areas open to profiteering via bogus invoices for availing extra credit and truncate the tax liability is still absent.
In the recent few weeks, the Income-tax department has issued notices to the GST-registered businesses which have showcased downturn of 20% or more in annual revenue last year.
Notices about the disparity in declaration between GSTR-3B (summary return) and GSTR-1 (details of outward supplies) is no rookie since the beginning of GST regime but now the department is putting earning of businesses under GST era and earning under the service and excise regime in the comparison scale.
Notices by the Income Tax department has created another problem for the GST registered businesses, seeking details and documents justifying the reasons for the decline in their sales. The department is trying to hunt and sting as many cases of tax evasion under the new indirect tax regime as it can. For this purpose, the government is considering & examining that data stock which was never available to them prior GST. Now after comparing the tax returns under two different tax regimes, the GST IT system has started buzzing the warning signals for taxpayers.
The cursor of notices has been dispatched to those businesses as well which have genuine reasons, such as economic stagnation, for the shortfall in revenue. Like in a case, a service provider who caters MNCs received a notice from IT dept but the reason behind the revenue shortage is the termination of some contracts. In another instance, the IT dept ordered the taxpayer to present input tax credit documents because a major portion of its tax liability was paid from an accumulated tax credit.
The Comptroller and Auditor General’s (CAG) recently brought attention to the fact that although the GST regime is constantly working on averting tax evasion and it has collected various data to check evasion yet there are many illegitimate techniques available with which additional credit can be claimed and tax liability can be abbreviated. He also said that the new return system shall become operative only from next year.
For the time being, total tax evasion of approx 1.2 lakh crore under GST has been estimated by the tax department. According to an official, 12,000 crore is the total tax escape which has been discovered since GST became effective before two years.
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However, the experimental approach says that detection is only 10% of the actual tax dodging which is happening. The total deficit in the GST collection target set by the central government for FY19 fell is more than 60,000 crore. This has galvanised government to fix relatively ordinary budget estimate for the current fiscal at 11.89 lakh crore which implies the average monthly collection of just below lakh crore. The good news is that the initial four months of the fiscal year 2020 has witnessed collection at the required rate.
