While land and real estate and electricity have been kept out of the scope of the Goods and Services Tax (GST), its construction has been compromised, but a series of steps taken after the legislation’s launch in July 2017, including addition to the list exemptions, taxation without input credit in certain areas, “compound arrangement” for small taxpayers and delays in correcting tax inversions in many segments have made taxation more complex. Furthermore, taxpayers were given undue leeway in filing returns in such a way that invoices could be matched for long periods of time before the system was made robust and rigorously implemented.
A decline in collections has prompted the Tax and Customs Administration to take corrective measures in the past year, which has improved compliance and stimulated collection.
The jump in GST collections in recent months is the result of a combination of factors: a business shift away from the informal sector, effective use of information and technology to tackle counterfeit bill rackets, targeted drive in sensitive sectors. for evasion, stronger audit tests, controls on the misuse of pre-tax credits (ITC) by business units, high inflation and an overall improvement in compliance.
The April GST mop-up was the highest at Rs 1.68 trillion. Also in May, the collections exceeded Rs 1.4 trillion and the June receipts could be similar. Over the next few months, collections could remain in the range of Rs 1.3-1.4 trillion, although the new threats to economic activity and consumption due to global headwinds and high inflation may reflect GST receipts .
High inflation and a general improvement in compliance also helped. Of course, some of the revenue increase is optical, as growth rates are ahead of a drop in revenue seen in FY21 that was hit by the pandemic.
However, revenues are likely to stabilize unless structural emissions are addressed with a reduction in the number of plates, a complete elimination of the tax inversions that lead to the accumulation of unusable pre-tax credits in key industrial segments, and most importantly a broadening of the tax base in terms of recording the transactions in the economy.
The place of supply rules, which are at the heart of destination-based taxation, need to be amended to ensure that revenues are effectively appropriated by the jurisdiction where consumption takes place.
GST has led to unhindered movement of goods across state borders and has led to the levying of countervailing taxes in the form of integrated GST at the customs gate itself rather than post-consumer as was the case in the previous regime.
False invoicing is a source of concern for the tax authorities. While the GST laws had defined the duties of the Center and states in tax administration and delineated which taxpayers would report to whom, faceless judgment and careful use of information have made this rather vague. But both the Center and the states have stepped up their vigilance in the public interest that the correct amounts of taxes are paid and that no additional pre-tax credits are distributed.
As of November 2020, the Center and the states have collectively booked more than 6,700 cases, arrested more than 650 people, unearthed more than 20,000 fake GSTNs, and detected more than Rs 50,000 crore of false ITC demand with the recovery of Rs 2,400 crore. , said Sushil Kumar Modi, Bihar’s former deputy prime minister and finance minister.
Abhishek A Rastogi, partner at Khaitan & Co said: “Interestingly, artificial intelligence is being used in several cases to detect and trace tax leaks. The information obtained is then used by the investigating officers to quickly recover tax evasion in several cases. .”
As such, the GST tax base has increased from 6.39 million at the beginning to 13.7 million now. But in terms of revenue, only part of this base matters.
The government has implemented a range of administrative measures, such as improving the GSTIN user interface, simplifying the filing of periodic returns, improving error reporting and devising tools and methodologies to simplify periodic GST returns. Reducing the compliance burden of filing GSTR-9C for taxpayers with annual total revenues up to Rs 5 crore and of filing GSTR-9 for taxpayers with total revenues up to Rs 2 crore, self-certification of GST audit reports etc. also have helped streamline the processes.
In order to prevent fraud and misuse of ITC based on false billing, Aadhaar authentication has been introduced for the processing of new registration applications.
Furthermore, the issuance of e-invoices has been made mandatory for all B2B transactions with turnover above Rs 20 crore and verification of ITC is used by generating GSTR2B etc.” said Tanushree Roy, Director of Indirect Taxation, Nangia Andersen India.
“Yet B2C transactions are not reported in real time. And this is a major gap when it comes to improving compliance,” said Bipin Sapra, tax partner of EY India.
The ongoing GST Council meeting in Chandigarh is likely to take many steps to check for evasion, such as biometric authentication of “high-risk taxpayers”, inclusion of electricity bill data during registration by new taxpayers, real-time validation of all bank accounts against a particularly PAN, risk assessment of new applicants using machine learning and mandatory physical verifications, and geocoding site verification to get the correct address submitted by taxpayers. It will also take into account the interim report of a group of ministers on tariff restructuring proposing correction of the reverse tariff structure of some value chains.