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Strict Rules to be Followed to Reduce GST Evasion

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On 1st July 2017, the Goods and Services Tax (GST) was introduced as the most significant reform in the taxation regime. It aimed at reducing the complexities of filing GST returns and thus increase the base of overall taxpayers in India. However, a long time since its implementation it has failed on all the significant parameters.

Here is why GST Evasion is still a big problem for the government?

One of the significant outcomes of GST or Goods and Services Tax is that the government has failed in the collection of taxes. From the time it was introduced to now, the government has hardly met the projected target of collection of taxes. What is worst is that these numbers have significantly dropped as the years have passed.

Let’s dig at some numbers now!

  • For the budget 2018-19, the government proposed the revenue of Rs.6.03 Cr(approx) from GST collections. In the interim budget, this number was reduced to Rs. 5.03 Cr. However, the government failed to reach this figure, as well.
  • For the time period between April 2018 and February 2019, the government fell short of the revised target by Rs 91 Crores( Approx)

With both the Central government and State government failing to reach their revised target, the revenue from GST collections has dropped to a significant level. While, as per the GST rules, if the State government falls short in the collection of revenue, then the Central government would provide funds from the Compensation Cess. However, another problem is that there are no funds in Compensation Cess as well.

Why are there no funds in Compensation Cess?

The Central Government categories the GST Tax Slab rate according to the product & services & collects taxes from products such as Cigarettes, Alcohol, and the rates of these luxury products are significantly higher at 28%. With the reduction in collection of taxes from these products as well, the government has failed to compensate for the decrease in revenue collection. It was highlighted in the recent GST Council meeting that the government had not paid funds to the State governments since December 2019, which was however paid recently.

The bigger problem is filling the requirement of funds for compensation cess in the future. To tackle this problem, there have been recommendations to raise the money/funds from the market. Another idea is to increase the slab rate of products in compensation cess or increase the number of products.

Along with that, it is also crucial to understand why there is a fall in the collection of taxes. Some experts have pointed out that with the reduction in tax slab rates, there has been a fall in GST collections. This idea, however, seems absurd. To understand about tax evasion, it is significant to understand the root of the problem. One of the causes for which is complexities in filing GST returns.

To this, some say that the earlier system was more complicated than the GST, but this cannot be entirely true. The rules for filing returns for services are clearly more complicated in the new regime of GST and can thus be replaced by the earlier system.

Further, it has been seen that the benefits of Input Tax Credit are also being reduced which is defeating the primary purpose of introducing GST. It is because, with no advantages of ITC, GST no longer remains the Value Added Taxes.

Conclusion: It is thus essential to take significant steps to prevent tax evasion rather than just lowering taxes rates. Reducing the complexities of filing GST returns can be one such step to avoid tax evasion.

Summary: Strict rules to be followed to reduce GST Evasion

Goods and Services Tax (GST) was introduced as the most significant reform in the taxation regime to reduce the complexities of filing GST returns and thus increase the base of overall taxpayers in India. However, a long time since its implementation the government has failed in the collection of taxes.

For the budget 2018-19, the government proposed the revenue of Rs.6.03 Cr(approx) from GST collections. In the interim budget, this number was reduced to Rs. 5.03 Cr. However, the government failed to reach this figure, as well.

One of the causes for reduction in tax collection is complexities in filing GST returns. To this, some say that the earlier system was more complicated than the GST, but this cannot be entirely true. The rules for filing returns for services are clearly more complicated in the new regime of GST and can thus be replaced by the earlier system.

 

Further, it has been seen that the benefits of Input Tax Credit are also being reduced which is defeating the primary purpose of introducing GST. It is thus essential to take significant steps to prevent tax evasion rather than just lowering taxes rates. Reducing the complexities of filing GST returns can be one such step to avoid tax evasion.

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