Two Years Of GST: How E-Way Bills Have Curbed Tax Evasion

The Goods and Services Tax, arguably the biggest reform in Indian history will soon be completing two years. One can see the evolutionary journey of this developing law over the last two years which has been filled with structural, procedural and legislative changes. While it will still take some more time for the law to get settled, the efforts that have gone into making this happen are nonetheless applaudable.

From the government’s standpoint, while revenue has been steadily increasing in 2018-19 (monthly collections have consistently crossed the Rs 1 lakh crore mark now), the increase in average monthly collections of around 8 percent over 2017-18 falls short of expectations. In fact, in the current fiscal too, the trend is not that encouraging.

However, the central GST collections in 2019-20 have been projected to be over 30 percent higher than what we achieved in 2018-19. With limited room for any rate increase, the government is relying on increasing the tax base by plugging the tax leakages. For this purpose, the government has been focusing on the increased use of technology.

Key Data Tool

One of the key technology initiatives as a source for ‘data’ for the government was the introduction of the e-way bill mechanism. To recap, the e-way bill is a document that needs to be generated on the government's online portal for movement of goods above Rs 50,000 per consignment. The nationwide e-way bill mechanism was made mandatory from April 1, 2018, for inter-state movement and was followed by intra-state movements in a phased manner. Before GST, in many states, there was a system of obtaining a road permit/way-bill which was intended to track the imports into the state and whether VAT was subsequently paid by businesses.

The e-way bill system aims to provide a completely automated as well as a uniform approach for the movement of goods and was hailed as a game changer for the logistics sector. Considering the quantum of transactions/data which needs to be handled by the e-way bill system, there were a few initial challenges, both for the government as well as businesses. Industry also needed some time to gear up the change and incorporate the e-way bill as a routine part of its procedures.

After almost 15 months of implementation, it can be said that the system has largely been successful. As per government statistics, in FY19, more than 55 crore waybills have been generated. While the exact correlation between the implementation of the e-way bill and increase in revenue collections for the government may not be available, it might be fair to say that the system does act as a deterrent for tax evasion.

Various features have been included/amended by the government for the ease of doing business, including an option of auto-calculation of distances based on PIN codes (which can also be amended), a facility to extend way-bill when the consignment is in transit as well as a mechanism to directly import e-way bill data for GST returns compliance perspective.

Generation of multiple e-way bills with the same invoice/document number has been disallowed. Hence, once an e-way bill is generated with an invoice number, no other party (consignor/consignee/transporter etc.) can generate another e-way bill basis the same.

The e-way bill has also been a major source for data reconciliation for the officials. The e-way bill data for movement of goods (both outward and inward) is being used for reconciliation with GST returns and many businesses have already received notices wherever there are any differences.

The percentage of registered businesses filing GST returns, which has been hovering around 70 percent, has been a concern for the government. The government has now proposed to block the generation of e-way bills in cases of non-filing of GST returns for two consecutive tax periods. In the last GST Council meeting, this has been extended to Aug. 21, 2019.

Moving To E-Invoicing

Riding on the success of the e-way bill system, the government is also proposing to implement an e-invoicing system. Under the e-invoicing system, to start with, the Government proposes to track all business-to-business transactions by providing a unique invoice reference number by integrating government systems with an ERP system (either directly or through other modes such as third-party service providers, offline facilities etc.). This system is being seen as a natural extension of the e-way bill system, (which also provides for a unique e-way bill for each movement of goods) but at a much larger scale.

Once the e-invoicing system is implemented and stabilised, the government may even look at discontinuing the e-way bill system in the long run. However, it is expected that as such, the e-way bill system would continue for at least a few years till the time the e-invoicing system matures.

Such process or IT changes coupled with stakeholder readiness would keep the industry busy again on the GST front for from time.

Technology is shaping the tax administration of the future and the e-way bill, which might now be a base for e-invoicing, is a clear manifestation of this phenomenon. With RFID-enabled vehicles already gaining momentum, coupled with e-way bills, in few years, the government may be able to track the precise movement of consignments. A new India is being built on the back of a tax led technology backbone.

Pratik Jain is Partner and Indirect Tax Leader at PwC India.

The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.