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GST Council may tighten rules to curb tax evasion
Hindustan Times, June 17, 2019

Goods and Services Tax (GST) Council, the federal indirect tax body, is set to take several steps to curb tax evasion in its first meeting to be chaired by new finance minister Nirmala Sitharaman on June 21.

The government plans to increase scrutiny on businesses amid lower-than-expected GST collections after handholding them through the first two years of the tax reform. The 35th meeting of the GST Council will seek to introduce compliance requirements, initially on big businesses and eventually on all merchants to curb tax leakage.

The proposals before the council include compulsory generation of e-invoicing by large companies, validation of e-way bills (electronic permits issued for the movement of goods) with the data generated at toll plazas and geo-tagging of companies, said a person familiar with the discussions in the council.

Generation of e-invoices will improve transparency of transactions and act as an extra layer of regulatory oversight on transactions of large companies.

One existing safety feature in the GST framework is the rebate for taxes paid on past transactions in the value chain that forces buyers and sellers to keep a tab on each other. “E-invoicing on the designated portal will be implemented initially on companies with a large turnover, which will be specified. Once the system works, it can be extended to others,” the person cited earlier said on condition of anonymity. This is likely to be limited to business-to-business transactions initially.

Experts said the benefits of the tax reform would now start becoming visible. “In the pre-GST era, the common man was used to much higher tax burden due to the cascading effect of taxes. Now it has come down. Now that the initial period of disruption is over, the benefits of liberal and nominal tax rates will accrue to the economy in the coming years. The fruits of indirect tax reform will be felt in the near future,” said V Lakshmi Kumaran, managing partner at Lakshmikumaran and Sridharan Attorneys, a law firm.

A serious tax evasion concern that tax authorities have been grappling with is the multiple use of e-way bills generated for transportation of goods to suppress the actual value of the supply of items. Validating e-way bills with the data generated by radio-frequency identification-enabled vehicles’ payments at toll plazas is expected to curb this practice, said the person.

Geo-tagging of companies for GST compliance will take enforcement activities under the indirect tax system to the next level. At present, the ministry of corporate affairs (MCA) is implementing a geo-tagging scheme for companies aimed at identifying every active company and the people behind them. Pooling the geo-tagging information available from the MCA database with the data generated by indirect tax authorities will help in verifying the credentials of different parties to a transaction.

However, all measures to improve compliance will be implemented only in a gradual way, starting with the largest businesses. The slow recalibration of the tax system is meant to avoid a backlash that the tax reform had witnessed immediately after its rollout two years ago, forcing the council to defer tax return filing deadlines several times and temporarily suspend some of the safety features of the new system.

With revenue receipts below targets, the central government, which has the Constitutional obligation to compensate states for their revenue shortfall in the first five years of GST implementation, and states that worry about loss of revenue in the subsequent years are keen to gradually increase enforcement measures. No big tax rate cut is likely in the forthcoming meeting of the council.

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