The anti-black money drive and forced compliance has dealt a double whammy to tax evaders. Compliance has hurt the trading community the most.
Creating a cast iron framework against tax evasion is critical
The GST laws framed are pretty water-tight and well-designed to check tax evasion. Though complex and repetitive, it has an audit trail to check evasion. The matching of GSTR returns will start with the submission of GSTR 1, 2 and 3. The mandatory e-way bills that are supposed to check the movements of goods have been postponed till next fiscal year. In a way that is good because before the e-way bill comes into force the technical issues with the GSTN needs to be sorted out. But there is no rush in trying to catch many petty tax offenders and missing out due to incomplete evidence.
There is no doubt that the current process of GST submission needs to be simplified. Besides GSTN/Infosys needs to sort out the technical glitches that it is facing. It is a matter of six to nine months that the teething problems currently faced by GSTR will be sorted out. This is an ideal time to track persistent tax evaders and create a foolproof process to have them in the net.
As digital evidence is being created, it is difficult for tax cheats to get away. The tax officers of the central government and the state governments also must be trained in this period to ensure better compliance. Even if the next two years are spent in creating a rigid framework to proceed against tax evaders it is worth the effort.
Squeezing out the cash parchi
It is essential to understand how tax evasion has been institutionalised by the trading community. And connecting the dots with the heavy cash depositors during demonetisation can give the clue of the offenders. Rs 2.89 lakh crores of cash was deposited in 18 lakh accounts in the country during November and December 2016 and is under scrutiny of the IT authorities. They are now being monitored under three categories of high risk, medium risk and low risk cases. Most of those identified under the medium and high risk categories may be those who are also at the forefront of GST evasion.
GST evasion takes place through Kuchha bill books and cash dealings. Here, goods are supplied and payment is made against cash right down the supply chain. The cash parchi system starts mostly in the wholesale markets of India. Manufacturers, especially those in the organised sector, do not normally sell without bills or against cash. It is their distributors sitting in the whole sale markets who arrange the cash deals.
One out of four items are sold in cash but the parchi system does not carry the number of products as credits. It simply carries the amount due in cash in each transaction between two parties. Small bits of paper with numbers scribbled give the hint of how many Petis (lakh) or Khokas (crore) are due. The settlement takes place between the traders in cash usually after a week or a fortnight. It is this cash parchi system that needs to be squeezed out to ensure better compliance.