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What government is doing to improve GST compliance
June, 19th 2019

1) What’s the direction of GST in the near term?

Central and state tax officials have until recently taken a lenient approach in administering the technology-driven tax, allowing businesses and traders time to adapt to the new regime. This is quickly making way for a tough new approach to check evasion. Implementing a new, simpler tax return filing form that will make tax evasion harder and stabilizing revenue collection top the agenda of the GST Council. Its medium-term agenda includes converging the two standard tax rates—12% and 18%—applicable on a large number of items somewhere in the middle as revenue collection improves.

2) What’s the plan to check tax evasion?

The GST Council plans to curb tax evasion by using technology and data gathered from various sources to their full extent. One of the proposals is to ask large firms to generate invoices for business-to-business transactions on a designated portal. This will help prevent instances of the buyer taking credits for taxes that the seller has never paid to the government. Identifying and plugging revenue leakage would be a priority for the GST Council, said EY tax partner Abhishek Jain. “The proposed new return form will restrict tax credit utilization to the extent the invoices uploaded by the seller will allow," he added.

3) What about evasion at the retail level?

Selling without invoices, often with the connivance of the buyer, and the retailer pocketing the tax amount collected from the buyer instead of remitting it to the government are two ways tax evasion takes place at the retail level. Sale without invoice will require inventory more than what is shown in the records. This is often done by using the same e-way bill (electronic permit for transportation of goods) multiple times. Officials believe the plan to validate e-way bills with the data collected at toll plazas of movement of radio frequency identification-enabled vehicles will help check this problem.

4) In what way will close coordination between the direct and indirect tax administration help?

Experts say that globally, indirect tax reforms have helped improve income tax and corporate tax collections as the transparency in sales achieved by GST makes it harder to hide income. Close coordination between the two streams of taxation helps officials to connect the dots and profile assessees better.

5) How serious is the revenue shortfall?

The combined monthly target of central and state governments for this fiscal is about ?1.14 trillion. They collected just over ?1 trillion in May, up 6.7% from the same month a year ago but below the monthly target. Revenue shortfall implies the centre has to compensate states for their losses. The sluggish pace of revenue growth means there is not much legroom for the GST Council to cut tax rates in the near future unless revenue receipts soar.

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