GST evasion? Rampant under-reporting of online sales detected

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December 10, 2019 6:20 AM

Sales shown by vendors in monthly returns far lower than that computed from TCS data

GST evasion, GST, ecommerce portals, Amazon, Flipkart, TCS data, Amit Mitra, Form GSTR-9, GSTR-9C, ITCOfficials estimate that tax frauds of as much as Rs 90,000 crore a year could be taking place, of which the GST system is able to detect about only 10-15%.

The goods and services tax (GST) authorities have stumbled upon instances of online sales reported by several firms that sell goods on e-commerce portals like Amazon and Flipkart being much lower than such sales computed from the tax collected at source (TCS) data furnished by the marketplaces. Given that online sales are more traceable due to the organised nature of the marketplaces, evidence of evasion even in this segment confirms fears expressed by many analysts and state finance ministers like West Bengal’s Amit Mitra that GST evasion is much more rampant and large-scale than officially acknowledged and could be one of the principal reasons for the decline in collections apart from the slowdown in consumption.

Under the GST system, sellers on e-commerce platforms, except those supplying services, are required to register on the GST Network, even if their turnover fall below the GST threshold of Rs 40 lakh per annum. Further, the e-commerce portals are required to deduct 1% of the taxable sales that take place on their platforms before making payment to the vendors and deposit the amounts with the government. The sellers can use the TCS as credit at the time of filing returns and paying taxes.

“We have performed a preliminary exercise which has revealed mismatches between sales extrapolated from TCS and self-declared sales in the monthly returns of sellers. In some cases, such mismatches were found to be to the tune of Rs 2-3 crore but the extent of the under-reporting will be clearly known only after the exercise is over,” an official said. He added that since many such sellers also operate offline (where it is more difficult to do such cross-matching), the quantum of evasion by them could be substantial.

GST administration has been struggling to plug tax evasion since its inception. As a proper invoice matching mechanism is still absent, it has had only limited success on this front. Recently, the government not only extended for yet another time the due dates for filing Form GSTR-9 (annual return) and Form GSTR-9C (reconciliation statement), by one and three months, respectively, to December 31 and March 31, but also undermined the utility of these returns by virtually removing crucial anti-evasion features.

As the GSTR-9 and GSTR-9C forms have now been ‘simplified’, taxpayers won’t require to provide the split of input tax credit availed on inputs, input services and capital goods. Also, they won’t need to provide HSN level information of outputs or inputs for 2017-18 and 2018-19.

Officials estimate that tax frauds of as much as Rs 90,000 crore a year could be taking place, of which the GST system is able to detect about only 10-15%. A large part of evasion happens through circular trading and fake invoices for availing input tax credit. Citing instances of frauds detected by authorities recently, Mitra wrote to finance minister Nirmala Sitharaman a few weeks ago: “Fake ITC (input tax credit) means tax lost, as this ITC is not backed by transaction in goods or services in reality. Even worse is the fact that some recent reports are suggesting that these chains appear to be ending in export. This means not only that they are not paying taxes, they are actually getting cash refunds against ITC where actual business never took place.”

“While the revenue department may be correct in their findings, we would expect them to take a soft approach on this so that genuine sellers are not burdened with charges of mis-reporting. Further, even marketplaces should be scrutinised as we have evidence of lot of data problems emerging from marketplaces,” a spokesperson of All India Online Vendors Association (AIOVA) said.

“E-commerce operators as well as online sellers are independently loading information of taxable supplies made during a given month to GSTN, and any short-reporting by online seller would attract a notice for additional tax payment together with an interest of 18% per annum,” Rajat Mohan, senior partner at AMRG & Associates, said.
Officials said that some of the fraudulent practices under GST would be better tracked with e-invoicing mechanism which is scheduled to be implemented from April 1 for businesses having annual revenue of over Rs 100 crore. Along with the new simplified return, which is also expected to be implemented from April next year, tax officials would have better tools to detect and pre-empt evasion, they added.

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