Goods and Services Tax (GST) Council, the federal indirect tax body, is set to take several steps to curb tax evasion in its first meeting to be chaired by new finance minister Nirmala Sitharaman on June 21. The government plans to increase scrutiny on businesses amid lower-than-expected GST collections after hand-holding them through the first two years of the tax reform.
The 35th meeting of the GST Council will seek to introduce compliance requirements, initially on big businesses and eventually on all merchants to curb tax leakage. The proposals before the council include compulsory generation of e-invoicing by large companies, validation of e-way bills (electronic permits issued for the movement of goods) with the data generated at toll plazas and geo-tagging of companies, said a person familiar with the discussions in the council. The generation of e-invoices will improve the transparency of transactions and act as an extra layer of regulatory oversight on transactions of large companies.
One existing safety feature in the GST framework is the rebate for taxes paid on past transactions in the value chain that forces buyers and sellers to keep a tab on each other. “E-invoicing on the designated portal will be implemented initially on companies with a large turnover, which will be specified. Once the system works, it can be extended to others,” the person cited earlier said on condition of anonymity. This is likely to be limited to business-to-business transactions initially. Geo-tagging of companies for GST compliance will take enforcement activities under the indirect tax system to the next level.
At present, the ministry of corporate affairs (MCA) is implementing a geo-tagging scheme for companies aimed at identifying every active company and the people behind them. Pooling the geo-tagging information available from the MCA database with the data generated by indirect tax authorities will help in verifying the credentials of different parties to a transaction.
However, all measures to improve compliance will be implemented only in a gradual way, starting with the largest businesses. The slow recalibration of the tax system is meant to avoid a backlash that the tax reform had witnessed immediately after its rollout two years ago, forcing the council to defer tax return filing deadlines several times and temporarily suspend some of the safety features of the new system.
With revenue receipts below targets, the central government, which has the Constitutional obligation to compensate states for their revenue shortfall in the first five years of GST implementation, and states that worry about loss of revenue in the subsequent years is keen to gradually increase enforcement measures. No big tax rate cut is likely in the forthcoming meeting of the council.
Source: hidustan times
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