The reality of Goods and Services Tax (GST) in the field is worrisome as there is tax evasion and administrative hurdles.
There is a need to make some fundamental changes to make GST a success.
What are the challenges?
The tax administration is unable to fulfil the objective of providing a tight infrastructure to weed out evasion.
The administration and the taxpayer have to contend with continuing changes in GST rates made by policymakers.
New laws in other sectors have conflicted with GST implementation.
Large businesses are as much prone to tax evasion as small, lending a touch of implausibility to the tax.
Examination of systemic deficiencies and correcting them promptly are missing.
The frequent dropping and jamming of the GST website have to be mitigated successfully if good taxpayers are expected to comply on time.
What is leading to tax evasion?
The biggest challenge for the system has been its inability to auto-populate linked information from one tax form to another.
The taxpayer has to report his sales, purchases and the GST return in three different forms separately.
These forms are supposed to be linked electronically but are not.
The introduction of GST without this basic linked-framework is now rearing its head in tax evasion.
GST without the innovation of linkages is not fundamentally different from India’s earlier indirect tax structures.
Similar modes of evasion continue under GST.
What are these modes of evasion?
One method of evasion is claiming huge amounts of tax payment throughaccumulated credit (AC).
Without field investigation there is no way to find if the AC used to pay tax reflects the true picture.
Another method is to show large and false turnover and, together with it, large input costs.
What would be the impact?
False AC limits GST revenue collection, in turn constraining government expenditure disbursements.
This will increase the pressure on tax collectors to increase collection haphazardly which will in turn limit legitimate input tax credit claimed by honest taxpayers.
Fake invoices are used by brokers who are being used by company executives in particular sectors.
Such brokers are the ones who make illicit profit through exploiting such businesses that they are supposed to serve.
The Bankruptcy Code has not helped. It allows taxpayers to hide behind Section 13 on non-performing assets (NPAs).
How GST could be made a success?
Terminating GST registration when a supplier goes out of operation should be considered automatic rather than pending the process.
Ultimately, how GST fares will depend on the Indian taxpayer’s attitude towards paying tax.
Complementary policy and administrative actions are imperative.
Policymakers should produce a consistent and stable tax rate structure.
The model for auto-populating forms should be achieved without delay.
Facilitation by the administration in refunds, de-registration and other functions should not be thwarted by the administration to meet revenue objectives.
