New Delhi, January 17, 2018

The government may try to put in place rules to check tax evasion but trust ingenious businessmen to come up with ways to beat it.

That's precisely what's happening with goods and services tax (GST), where protests by traders have forced the government to go slow on enforcing several elements, such as matching of sales and purchase invoices and electronic way bill, that were meant to plug evasion.

What has added to the problem is multiple rates. Tax officials admit that in case of garments, for instance, a number of smaller players were billing one shirt that costs upwards of Rs 1,000 and attracts 12 per cent levy as two pieces of around Rs 600 each to pay only 5 per cent levy. This is in addition to a number of garments that earlier cost more than Rs 1,000 seeing marginal price cuts to fall under the lower tax bracket, where there is nothing wrong.

Taking advantage of tax arbitrage is among the simpler ways to evade tax.

Some garment and utensils players are using railways to evade tax, consultants and officials said. Unlike goods moving by trucks, which are stopped on the way, there are virtually no checks in case of railways, making it easier to evade taxes. In the past traders have ganged up to chase tax authorities at railway stations, making officials extremely wary of conducting raids, a senior official involved with GST told TOI.

When it comes to trucks, several businessmen based in Surat seem to have perfected the art. Industry players said that sari traders often use the same set of invoices to ship goods thrice to Delhi. "I don't know why it's three times but it is an industry norm," said a tax consultant. A senior official acknowledged the massive use of kutcha and pucca invoices with the latter destroyed if tax authorities do not check a truck on the way.

With e-way bills coming in, this kind of evasion will be a little difficult although there is already chatter of two kinds of transport — with e-way bill or without it. Officials, however, said that life will become tougher and the government will also have a better picture of the goods that are moving across the country, helping it plug leakage. The fall in tax collection to Rs 81,000 crore in November is attributed to massive leakages in the GST regime, including by many businesses using the composition scheme route that was meant to make life simpler for smaller traders, manufacturers and restaurants.

While leakages are one part of the story, another is misuse of tax credits, where Delhi seems to have taken the lead with what is known as "bill to one and shift to another". This is a racket involving fake invoices that are generated in favour of entities that want to take input tax credit, while those who don't need the benefit charging a premium. A tax official said that in case of construction, steel is prone to this kind of misuse with Faridabad being a major centre.

There are other ways of misuse of tax credit too, but they are seen to be minor violations.

[The Times of India]