In the last year, tax authorities have discovered a total of 40,000 crore in goods and services tax evasion, largely due to fake invoices and fraudulent input tax credit claims.
A slew of new measures aimed at closing loopholes and preventing fraud are set to take effect on January 1, but a senior government official told ET that sufficient care was being taken to ensure that they did not jeopardise the government's ease of doing business initiative. The Central Board of Indirect Taxes and Customs, in collaboration with the Directorate General of GST Intelligence and various Central GST formations, launched an All-India Enforcement Drive on November 9, 2020. "More than 5,700 cases have been detected, with a total value of about Rs 40,000 crore," the official said.
The new measures are intended to combat such frauds, instil better payment discipline, and protect the recipient, who may not always be able to verify that his supplier has paid the tax and is therefore vulnerable to the recovery of input tax credit if the tax is not paid by the supplier.
These amendments will have no impact on ease of doing business," the official added. "Ease of doing business is achieved in GST through a liberal registration, refund regime, and self-compliance mechanism based on self-assessment and self-policing, with little or no manual checks."
"Most of these changes are in the right direction," said Pratik Jain, a partner at Price Waterhouse & Co. "Most of these changes are aimed at plugging the misuse of input credit and are in the right direction." Many large companies, he said, had already implemented a system of only claiming matched credit, and now others must follow suit. If the volume of transactions is high, this will necessitate the use of robust technology solutions, he said, adding that there is currently no way for buyers to determine whether the seller has paid the tax or not.
Closing the gaps
The government has amended the CGST Act 2017 through the Finance Act of 2021, which will take effect on January 1st, based on the GST Council's recommendations. One of the most important changes is that input tax credit on an invoice or debit note can only be claimed if the details have been provided by the supplier in his statement of outward supplies and those details have been verified.