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Govt may increase scrutiny on GST filings to check tax leakage
August, 29th 2018

The government is planning to analyse data from GST returns, income tax filings and transfer pricing submissions to check there's been any leakage in tax collection, the Economic Times reported today. However, some banks, FMCG companies, tech firms and automobile manufacturers fear that such a move may lead to increased scrutiny.

According to the report, transactions such as royalty payments, CEO salaries and valuations of Indian operations will now come under the scrutiny of not just the indirect tax department but also the direct tax and transfer pricing departments.

Speaking on the development, Deloitte India partner MS Mani told ET that "it is necessary for businesses to take a comprehensive view while filing their GST annual returns this year, considering their submissions in their income tax and transfer pricing filings, as these might be compared on various parameters".

For instance, when it comes to transfer pricing, the tax department uses Function Assessment and Risk (FAR) analysis to determine how much margin should be allowed and the extent of the transfer pricing demand that can be raised from a multinational, the report said.

However, under GST, the valuation rules for these transactions between the Indian subsidiary and its foreign parent may result in additional taxes, it further added.

Such analysis was not possible before as the government did not have the data organised in a manner that could allow such comparisons.

The report suggests that many tax officials are of the opinion that once the government starts the analysis, there will be several implications for companies as the imports by them would be scrutinised.

"The focus is also on the import data shown by various companies and we see that there could be complications going ahead as companies may struggle with one department while trying to accurately comply with others and this could also lead to litigation," the daily quoted Abhishek A Rastogi, partner at Khaitan & Co, as saying.

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