😯The Cost of Non-Compliance: How India is Losing Rs. 22,000 crores to GST Tax Evasion!
Thousands of Indian businesses are evading GST. This evasion could slow down our economic growth and development. So, here’s a look into how and why Indians are not paying their taxes. ReadOn!
It appears that we have a conundrum on our hands. The GST collections in India have reached an average monthly collection of Rs. 1.5 lakh crores.
But according to the Central Board of Indirect Taxes and Customs (CBIC), there have been over 48,000 cases of tax evasion in FY22-23, with a total value of Rs. 22,000 crores!
So, why is this happening? ReadOn!
🤓 The Art of Tax Evasion
It seems that some businesses have found creative ways to avoid their tax responsibilities.Â
Here’s how:
They're not issuing invoices (which means there is no record of a transaction for tax officials) or under-invoicing. Here’s how under invoicing works:Â
For example, a company sells 10 shirts to another company. On the invoice, it claims it has only sold 5 shirts, which reduces its tax liability by half!
Some companies also issue fake invoices to claim GST input tax credit. How does that work? If a business pays GST on the goods or services they buy, they can claim that amount as credit against the GST they owe on the goods or services they sell.Â
Let’s say you are a manufacturer. You paid Rs. 100 in GST on something you bought, and you owe Rs. 200 in GST on something you sell. You can deduct the Rs. 100 you already paid from the Rs. 200 you owe. This means you only have to pay Rs. 100 in GST instead of Rs. 200.Â
But many companies create fake invoices to show that they have bought stuff and paid GST on it, without actually buying anything. This allows them to get input tax credit, which lowers their tax liability.
HSN Fraud: Under the Goods and Services Tax (GST) regime, every business needs to report the details of their sales and purchases in a GST return form. This includes reporting the HSN code of the goods they are selling or buying.Â
HSN fraud in GST refers to a situation where a business intentionally misrepresents or manipulates the HSN codes of the goods they are selling or buying to avoid paying the correct amount of GST. For example, a lot of services in India fall under the same heading. But they have different tax rates and different HSN codes. Some people take advantage of this, and apply the wrong HSN code to pay less GST.Â
But before we cast stones, let's try to understand why some of these businesses might be evading taxes.Â
👀 Why Do People Evade Taxes?
For some people, committing fraud is about saving money. For others, it’s a little complex.Â
For some, it's simply a matter of misunderstanding the law and misclassifying goods and services.Â
For others, the compliance burden is just too much to bear.Â
For most, the desire to improve margins by avoiding tax is much stronger than the fear of its consequences.
What are the consequences, you ask?
Tax evasion leads to revenue loss for the government and an increase in the flow of money in the informal economy.Â
And let's not forget the penalties: non-wilful defaulters are required to pay 10% as a penalty for non-payment or short payment of GST, while wilful defaulters face a penalty of up to 50%.Â
The penalties can include fines, imprisonment, and even confiscation of goods.
So, what can we do to curtail this behaviour?Â
Proper GST law training is essential to spread a clear understanding of the law.Â
Educating customers about demanding invoices is also important.Â
Simplifying the taxation rules and compliance burden on taxpayers can go a long way in making things easier for everyone.Â
And, of course, we must incentivise cashless transactions to avoid non-recording of transactions.Â
Stronger penalty provisions for non-compliance should also be implemented, along with relief provisions for huge taxpayers.
Let’s remember that tax evasion is not an art form, it should not be promoted. Let’s all do our part to boost the economy of our country.
But to make sure this happens, the government will also have to do its part. It will have to make complying with taxes easier.Â
Will the government do this? Can it do this?
Let us know if you liked today's piece. If you did, please share this with your friends, and get them to subscribe :)
See you tomorrow, smarty! 🤓
If you are coming here for the very first time: Join us on WhatsApp and never miss an update! 👇