GST Council To Discuss Steps To Curb Tax Evasion On Friday

The GST Council meeting on Friday may discuss measures to reduce evasion under the new indirect tax regime even as major rate revisions have been ruled out by a panel of officers.

To check rampant misuse of input tax credit and issuance of fake invoices to reduce payment of tax, the GST Council is set to finalise a system which will restrict facility to avail input credit above a certain threshold for certain taxpayers, said a tax official speaking on condition of anonymity. A system will be put in place that will flag exorbitantly high sales made by new firms as soon as they are incorporated.

To begin with, the proposal is to put a cap on availing input tax credit to stop such firms, that maybe sham, from unduly benefiting from the system.

This would be the first action after the risk against a new business is flagged by the system.

Such a measure would keep a check on “pop-up firms” which are created solely for the purpose of passing on fraudulent credit to evade payment of tax, the official said. Input tax credit is credit that businesses get for taxes paid on inputs.

Besides, this the GST Council on Friday will also consider giving relief to small businesses with turnover up to Rs 2 crore from filing annual returns for 2017-18 and 2018-19. This will cover about 85 percent of the 1.39 crore total assesses.

According to Abhishek Jain, a partner at EY India, this would be a relief for small taxpayers from the perspective of ease of compliance. Small taxpayers could not maintain some details which were required to be reported in the annual return due to the suspension of GSTR-2, Jain said.

GSTR-2 returns had to filed by taxpayers specifying their purchase details, and filing the same was kept in abeyance.

Rate Cut Hopes Fade

Any expectations of GST rate cuts to counter slowing economic growth and consumption, are unlikely to be met. The fitment committee—that decides GST rate revisions on products—has opined against any GST tax reductions as GST collections have not been as per government’s expectations, according to another government official.

Any major GST cut would mean the central government will have to compensate states more for the losses they incur. The central government has to compensate states for any losses they incur in the first five years of GST implementation.

However, the fitment committee has given its approval to reduce GST to 18 percent from 28 percent on hotels with tariff of Rs 7,500 and above. Or, the GST will discuss if tariff threshold should be raised to Rs 10,000, and tax tariff over that threshold at 28 percent.

The fitment committee has ruled out rate cut for the auto sector—which the industry is seeking to be reduced to 18 percent from 28 percent—citing revenue losses. The GST cut for the sector is estimated to have a revenue loss of Rs 50,000 crore.

The panel is also against rate reduction on biscuits priced at Rs 100 per kg or below from the current 18 percent. The industry had sought reduction of tax to 5 percent on biscuits priced Rs 100 per kg or below.

The GST Council, in one of its previous meetings, had also discussed lowering GST on such biscuits from 18 percent to 12 percent which the fitment committee had opposed even then.

The panel had said that biscuits were not just manufactured in the organised sector but by small bakeries as well, and having two different slabs based on the selling price would lead to tax evasion. It would also have significant revenue implication, the official quoted above said.