Direct correlation between non-filing of returns and non-payment of taxes
The budgeted GST collections by the central government for the financial year 2018-19 stand at Rs 7.43 lakh crore. But so far, the collections have been far from what had been budgeted. Hence, the collections have recently been revised to Rs 6.43 lakh crore.
The budgeted GST collections envisaged an increase on the back of economic growth and plugging leakages of revenue. In the last year, several cases of GST tax evasions have been unearthed. According to recent media reports, tax evasion amounting to Rs 20,000 crore has been detected between April 2018 and February 2019. Therefore, tax evasion is certainly a big possibility for lower tax collections.
Another area of concern is the increasing number of taxpayers who are not regularly filing GST returns. Although there is a high probability that many of these taxpayers are not in the high-taxpaying bracket, or may be in the nil-tax category, the non-filing of returns and, consequently, non-payment of taxes contributes to lesser collections. Many of these small taxpayers do not have the wherewithal in terms of IT infrastructure, IT awareness, etc, which may lead to avoiding filing of returns. In the absence of in-house capability, the reliance on outsourced service providers is a costly affair for many. Also, many have been facing issues of transition credit not appearing in their electronic records. In the absence of transition credit, paying taxes would mean cash outflow, which is a discouraging factor. It may be noted that under the GST laws, returns cannot be filed without payment of taxes. Therefore, there is a direct correlation between the non-filing of returns and non-payment of taxes.
Almost a year ago, e-Waybill was introduced with a view to create a digital trail and curb tax evasion. It has played a role in the detection of several cases of tax evasion.
Now, e-Waybill is familiar to the trade and it may be time to take it a step further. This could be the linking of the e-Waybill with the sales invoices/delivery challans in the GST returns. This would help identify and eliminate the possibility of using the same e-Waybill for multiple sales invoices, which leads to tax evasion.
Another measure that is already in the works is enabling the input tax credit only after the supplier has uploaded the sales invoice that has been accepted/confirmed by the recipient. Linking every sales invoice with a corresponding input tax credit was part of the founding framework of GST. It was discontinued due to complexities arising at the time of introduction of GST. It has now been proposed to launch this framework optionally from April 1 onwards and make it mandatory from July 1.
Apart from the above reasons, progressive reduction in tax rates, especially bringing goods in the highest tax bracket of 28% to 18% or lower, would certainly contribute to the reduction in GST collections. These reductions may not have been factored in when the budget was drawn.
The way forward
Apart from the measures on the e-Waybill front, it may be time to look at introducing a reverse charge mechanism, albeit very selectively, to a selected class of goods and services that are prone to tax evasion.
The GST Council has previously discussed incentivising digital payments by providing a discount to the GST rate. This needs to be reconsidered.
As a parting thought, one radical idea could be to provide set-off of central GST against income tax with appropriate thresholds for transactions that are designated as business to consumer. With the use of IT platforms, integration of reporting details akin to Form 26AS should not be a challenge. The ability to set-off GST against income tax liability could give leverage to the idea of capturing transactions that are susceptible to tax leakages.
The author is partner, Dhruva Advisors LLP. Views are personal