Ravi B. Soni
Goods and Services Tax (GST) is a very simple indirect tax structure, wherein tax paid on goods or services procured by any entity (manufactures, trader or service provider) at first level can be availed as input tax credit while passing on the goods or service to the second level. Similarly, tax on second level can be availed against tax on third level, so on and so forth, until the good/ service reaches the final consumer who bears the complete indirect tax incidence. In its truest of nature, GST indirect tax system is a classic example of Tax-credit Method under VAT, which (over multiple stages of transaction) collects appropriate indirect tax on the overall value added from various stakeholders in the process of transaction.
The Ideal Situation
In an ideal situation, seller / service provider on each level of the transaction will collect tax from the recipient of good/ service and deposit the same with the Government after availing their input tax credit. But in reality, this chain is often broken by the so called ‘Tax Absconders’. These ‘Tax Absconders’ like any seller/ service provider collect appropriate tax from the recipient but intentionally fail to deposit the same with the Government, instead they unlawfully assume the tax received as their secret profit margin. On the other side, the trader/ service receiver avails the input tax paid as input tax credit (ITC) as against their indirect tax liability, leading tax leakage for the government.
The real ‘Point of Tax Leakage’
Non availability of appropriate and strong centralized systems with the Revenue departments of the Government renders them helpless as to verify whether, the input tax credit availed by the service/good receiver, has been equivalently deposited by the good/ service provider or not. Thus the major problem that has to be addressed is to ensure that ‘Non deposited Tax’ by service/ good provider should not be availed as input tax credit by service/good receiver, because the real hidden ‘Point of Tax leakage’ is not non-deposition of tax, but rather the wrong availment of non deposited tax as ITC from the Government.
GST Offers a Solution
The Solution that we seek is rather complicated, because the problem of ‘tax leakage’ is linked with negative human intent and point blank theft. Presently the Government applies innumerable measures like penalties, imprisonment, fines, listing of hawala dealers etc. to control tax leakage, but all in vain. Such is the nature of Indian bureaucracy, that ‘tax absconders’ no more fear the consequences of their illegal demeanour.
Accepting a fresh approach, GST proposes to introduce GST Network (GSTN) as a strong centralized system with abilities to verify input tax credit against entities TIN (Taxpayer Identification Number) on ‘Real time basis’.
As discussed earlier, the crux of the problem lies with ‘non deposited tax’ wrongly availed by the service/ good receiver as ITC and not the ‘non deposition of tax’ itself.
Centralized Credit Availment System
Positively, GST structure through GSTN can offer a practical solution to this problem of tax leakage. GSTN with its centralized processing ability can enable centralized return filing from all the states (like Service Tax Return) governed under a powerful central agency. The following can act as a probable solution.
A set of two returns, Primary and Secondary Returns are proposed along with an Annual Return, alongwith administrative allowance for revised return etc as well. The return filing process through GST can be proposed accordingly:
· Monthly Primary & Secondary Returns alongwith Master Annual Return with invoice wise detail of both Sales and Purchases along with TIN details of Sellers, Purchasers & Service Providers ;
· First, Primary Returns will be submitted requiring Invoice wise information for Sales and Purchase with the appropriate TIN of the Service / Good receiver along with payment details of challan;
· Primary Return will have to be uploaded on GSTN portal;
· Next, the GSTN portal will simultaneously evaluate Assessee’s Input Tax Credit from the tax deposited/information provided by our suppliers/ service providers under Assessee’s TIN in their respective primary return;
· Accordingly, the GSTN portal will decide the Input tax credit (ITC) Assessee can avail;
· Any Difference between the credit claimed in the Primary Return and input tax credit ascertained by the GSTN portal directly will have to be rectified before SECONDARY RETURN;
· Once, ITC is determined by GSTN portal, the Assessee will have the option to revise the ITC with justification, if any;
· Practical problems like, non deposit of tax on time by the supplier will lead to non availment of ITC in Secondary Return;
· Thus, practically either the service/good receivers will force the good/service providers to diligently deposit the tax with revenue department, or good/ service receiver will not be allowed to claim ITC for non deposited tax.
Thus, over a larger period of time, a strong system like GSTN can de-motivate traders and service receivers to carry on business with tax absconders, thus internally correcting the fault in the system. Although there are a few assumptions that have been perceived, it is without doubt a strong system can bring about the change sought in tax collection leakages.
(Author can be reached at firstname.lastname@example.org)