Having detected frauds of close to Rs 50,000 crore, the Centre is looking to tighten processes, including those related to claiming input tax credit (ITC), and will focus on getting states to okay plans to shut down leaks and evasions at this week’s GST Council meeting. The government’s effort to shore up collections and improve revenues is likely to be a major area of discussion at the GST Council. Calls for rate cuts for stressed sectors like autos is expected to figure but new procedures to prevent evasion and misuse of GST provisions are likely to be adopted. On an average, businesses pay 20% of their tax in cash and pay the remaining using the tax credit accumulated in their accounts. Using the same principle, the finance ministry is planning to ask states to put in place a mechanism under which an enhancement in the limit to claim tax credit will require payment of 20% as the margin money. So, if your turnover is Rs 50 lakh and you want the limit enhanced to Rs 60 lakh, you will have to pay Rs 2 lakh as “margin money”. “This is like linking your loan limit to your credit history. If a business has received orders, it will have to convince our officers about a higher limit or talk to banks and get 20% extra.
The entire process will be automated to avoid any discretion,” explained an officer. Over two years after the launch of GST, collections have hovered around the Rs 1 lakh crore mark as leakages are seen to be rampant, especially when it comes to claiming ITC on taxes paid during the entire chain from purchase and transport of raw material to sale of the final product by a retailer, sources told TOI. Plugging gaps and finding ways to step up collections are going to be key themes at the meeting in Goa on Friday as the Centre and states are staring at a massive shortfall in GST revenue, with collections so far in the year growing over 6%, which is half the asking rate. The tight fiscal position is also expected to force the Council to defer a decision on tax cuts, which is being demanded by certain industry groups. For the government, a big worry is tax evasion.
Just last week, nation-wide searches were conducted, which led to unearthing of bogus claims of over Rs 450 crore. “We are looking at tough measures to rein in fly-by-night operators, who are misusing the system,” said a tax officer. In several cases, tax authorities have detected that a new business claims ITC by showing sales to individuals and entities as suppliers, and then vanishes. “We have come across instances where Aadhaar and bank details of terminally ill patients have been misused,” said an officer. As a first step, Aadhaar authentication for GST is being made mandatory. Besides, a key focus will be to limit the amount of ITC that an entity can claim, especially if it is new. So, the ITC that a business can claim in the first or the second year may be linked to its turnover and any enhancement may have to be cleared by a committee of officers. Officials said that given the monthly GST payment cycle, the additional payment will be like an advance for a month. Widespread use of technology and data mapping has already led tax authorities to crack down on businesses which were showing inflated sales to claim higher ITC on GST. In a large number of cases, when income tax returns were matched, it was found that these entities had shown a lower income to avoid paying income tax.