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While Thursday's Goods and Services Tax (GST) Council meet concluded with some cause for cheer after 83 employment-oriented goods and services saw their rates cut and the Council was reported to be moving towards one form to file returns, indications and statements emerging from the meet also pointed towards a tougher stance on the government's part as far as GST compliance is concerned.
Looking to plug gaps and curb tax evasion, the government could bring in a reverse-charge mechanism (RCM) under the composition scheme. In fact, Finance Minister Arun Jaitley has gone as far as to reportedly threaten as much.
As reported earlier, GST collections have been coming down and reached a low of Rs 800 billion in November.
Owing to the lack of any anti-evasion measures in the current system, GST revenues are subdued. As reported earlier, the biggest concern emerged from the composition scheme, which yielded just Rs 3 billion in the first quarter from 1.7 million dealers.
According to reports, over 40 of the law review committee's recommendations have also received in-principle acceptance. Subsequently, amendments would be moved during the second half of the Budget 2018 session.
Government to use two anti-evasion tools:
The government, according to reports, is set to tighten the noose. Here are the two tools it intends to use:
1) Reverse-charge mechanism: According to a Times of India report, the government aims to increase its GST collections by nearly 25 per cent. How will it achieve this feat? According to the report, the government will crack the whip on tax evaders from April by bringing back the RCM, which will serve as an anti-tax evasion measure and allow authorities to keep a track of transactions.
As reported earlier, the composition scheme yielded just Rs 3 billion in the first quarter from 1.7 million dealers. In fact, 500,000 persons have shown annual turnover less than Rs 500,000.
"Who would be a trader whose annual turnover is Rs 500,000 and still surviving? Why did you register then? That means that there is clear tax evasion," Revenue Secretary Hasmukh Adhia said after Thursday's meet. In order to curb evasion and plug loopholes, the GST Council could amend GST laws to make a RCM applicable under the composition scheme. Under the RCM, unlike the usual practice of sellers depositing the tax to the government, the buyer does so.
"There are indications that the reverse-charge levy on purchase from unregistered businesses could come back for composition dealers, which is important to plug the possible tax leakage," said Pratik Jain, partner at PwC India.
Jaitley has indicated that there is massive tax evasion under the composition scheme, the ToI report said. Consequently, Jaitley has threatened to amend the law, adding that there are suggestions to plug the loopholes using the RCM.
In its meeting in October last year, the GST Council had deferred the RCM till August 31, 2018. Under it, if a registered trader buys goods from unregistered supplier, the compliance of the unregistered buyer is the responsibility of the registered trader.
2) E-Way Bill system: The other arrow in the government's quiver is the electronic-way bills system, which will become mandatory starting in February.
Speaking to ToI, a senior official said that the government is "slowly tightening the noose" and that these two measures would help it to increase its collections "by around 25 per cent".
Stating that so far, compliance under the GST regime has been "voluntary" and "without anti-evasion measures", Jaitley said that the e-Way Bill system was an "important anti-evasion measure", adding that "collections would pick up".
As reported earlier, on Thursday, the GST Council reaffirmed that the e-Way Bill system had started operating on a trial basis from January 15. Jaitley said that from February 1, inter-state e-Way Bill would be mandatory, and that fifteen states would start using the system for even intra-state movement of goods from the same date.
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In December last year, the GST Council decided to implement the e-Way Bill mechanism throughout the country by June 1 after reviewing the readiness of the IT network.
Under the e-Way Bill system, goods worth more than Rs 50,000 have to be pre-registered online before they can be moved from one state to another.
The rules for the implementation of the nationwide e-Way Bill system for inter-state movement of goods on a compulsory basis will be notified with effect from February 1, 2018. This will bring uniformity across the states for seamless inter-state movement of goods, it said.
"While the system for both inter-state and intra-state e-Way Bill generation will be ready by January 16, the states may choose their own timings for implementation of e-Way Bill for intra-state movement of goods on any date before June 1, 2018," an official statement issued after the Council's meeting had said.
"But in any case, the uniform system of e-Way Bill for inter-state as well as intra-state movement will be implemented across the country by June 1," it added.
Subdued collections, falling revenues and tax evasion
The Centre and state governments are not pleased with the increasing revenue shortfall under the indirect tax regime.
Ahead of Thursday's meet, the Group of Ministers (GoM) looking into the implementation of information technology for the Goods and Services Tax Network (GSTN) raised concerns over the increase in shortfall in average revenue for states under the GST regime. This, coupled with subdued collections under the composition scheme, indicated that traders may be continuing to evade taxes or under-reporting revenues.
As reported earlier, the average revenue shortfall for states in December stood at 20.7 per cent and 20.9 per cent in November, the two recent months when the Narendra Modi government brought in several measures, such as tweaking tax rates, increasing incentives, providing relief to small and medium enterprises and improving the IT system to help traders file returns smoothly.
In comparison, the revenue shortfall in October was 17.5 per cent, which was lower than the 28.3 per cent in August, the first month after the government brought in the GST regime. The shortfall is calculated on the basis of 14 per cent growth on the base year of 2015-16.