GST: Traders exploit loopholes to evade taxes, earn profits illegally
Traders have found loopholes to evade taxes under GST. Officials believe high levy on daily use items is contributing to the problem. At other times, traders dupe customers by overcharging them. Though the government has warned violators, there hasn't been much action. So what exactly is the government doing to check the rampant malpractices in the market?
What issues did traders face under the GST?
Problems in GST were evident even initially. A major issue was mismatch in PAN details about nature of the business. Small-time traders had a hard time learning concepts like HSN code, or simply learning computers. Suvidha Providers, facilitators for uploading invoices/returns, said GSTN hadn't even provided them necessary details or staff. Technical glitches, taxpayers' reluctance, lack of invoice format etc added to the challenges.
How did traders cope with the challenges?
Traders also found several loopholes to evade paying taxes or pocketing high profits. Many overcharged customers, adding GST over and above the MRP. They provided separate bills for different tax rates on one item. Eg, shoes below Rs. 500 are 5% and those above that, 18%. So they billed two shoes of a pair separately. Many accepted only cash or refused to provide bills.
Did GST unintentionally encourage floating of shell companies?
A GST-registered trader can sell goods worth Rs2.5L monthly to an unregistered person. Those with annual turnovers of below Rs. 20L don't need to register. Hence a trader with Rs. 80L turnover could simply float three other entities so he doesn't cross Rs. 20L. Each entity can also buy goods worth Rs. 2.5L each- Rs. 20L total- without appearing on the tax radar.
What can be done to correct things?
Earlier, Revenue Secretary Hasmukh Adhia said authorities have to match GSTR 1, 2 and 3 soon. But "because of compliance burden and demand for more time (from industry), we had to postpone the matching." He also said nationwide introduction of E-way bills will make the system foolproof; "A lot of goods move without payment of taxes but with E-way Bill all will be reported."
What's next for the government?
Recently, the GST Council announced relief for traders: the composition scheme net was increased to taxpayers with turnover of upto Rs. 1cr. Non-composition scheme taxpayers with turnovers below Rs. 1.5cr were allowed to file returns quarterly. "If something needs to be done, we'll do it," PM Modi had said. The government is waiting for things to settle before launching a crackdown, an official said.
