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Government reworking anti-evasion systems

The government could turn less ambitious on the invoice-matching mechanism, one of the crucial anti-evasion measures in the goods and services tax (GST) regime, as it now reckons that cost of complying with then system to taxpayers and the tax department far outweighed the potential gains by way of plugging revenue leakages. According to an official estimate, invoice-matching could help plug tax evasion of about Rs 3,000 crore on a monthly basis, while cost of the mechanism could turn out to be much higher at Rs 8,000 crore or thereabouts. However, the department is still very firm on the electronic way (e-way) bill, which is necessary to track cargo movements as it believes that this could add Rs 10,000 crore every month to the government’s kitty, at a cost a fraction of that.

“An onerous invoice-matching system is not desirable because of the high cost and the fact that evasion in business-to business (B2B) transactions are traditionally low. But a robust system to check business-to-consumer (B2C) transactions and related evasions will be more productive in terms of revenue collection,” an official said on the condition of anonymity. Although the government has been vocal about the need to eventually have a robust invoice-matching mechanism, with the glitches at the GST Network, the IT backbone, and the inability of taxpayers to file the comprehensive returns, has resulted in its continuous deferment.

Both these mechanisms have been touted as effective tools against evasion that take place through over/under-invoicing. However, the available technology has failed to seamlessly launch either. The initial attempts to get taxpayers to upload inward and outward supply invoices for matching raised many heckles and was ultimately suspended. The government is now working on a simplified process to achieve the same purpose. Similarly, although the implementation of e-way bill system was advanced to February 1, the first day saw the system crash due to heavy traffic leading to its suspension and postponement till a new date to be announced.

 
 

“There is a possibility that manual intervention may have to be deployed to check evasion if invoice-matching has to be completely done away with. However, instead of cross-checking sale and purchase registers, a simplified system could tally credit claimed under GSTR-3B (a summary return) with that of GSTR-2A, which reflects credit claimed through GSTR-1,” said Abhishek Goenka, tax partner, GST, EY. Since suspending invoice-matching mechanism, the government is now mulling a revised system based on suggestions from Infosys chairman Nandan Nilekani and a committee headed by GSTN chairman AB Pandey. While the Pandey panel had suggested merging the three returns (GSTR-1, GSTR-2 and GSTR-3) into one, Nilekani said that taxpayers could be asked to merely upload invoices and match them without having to file tax returns.

“Simplification of systems is always welcome but after eight months of GST, most of large and medium-scale businesses have put in place systems for filing returns, which would be impacted if drastic changes are brought about for all taxpayers. This could lead to disruption and another round of investment in IT systems,” said Archit Gupta, founder and CEO, Cleartax.