GST has a new weapon to ensure compliance and reduce tax evasion, and you can try it

Besides the “one nation one tax” motto, GST had many other mandates. One of the main intentions behind the GST law was to increase compliance levels and check tax evasions. We had earlier explained various measures in the GST laws and rules, which ensure that the black economy is severely throttled. Now, another such weapon has been unleashed.

One of the fundamental principles in India’s GST laws is the “matching” concept. The logic is simple: Sales made by one person, are purchases of another. Thus, if a purchaser wants to claim credit for GST paid on purchases, the credit has to flow from the seller i.e. the seller must have collected the GST and paid it to the Government. Only then, it would be correct to give credit of these taxes collected and paid, to the purchaser.

In the erstwhile regime, there was no way to check this easily. Most officers did not bother checking this and relied on purchase invoices to allow credits. Hence, many times it was noted that some sellers had collected GST and had eventually never paid it to the Government, whereas the purchaser had claimed the credit of the same. The Government was at a loss.

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With the new system in GST of “matching” i.e. matching the seller’s GST on sales with the purchaser’s GST on the same transaction, this revenue leakage has been largely plugged. But this provision in the law also had its drawback. A purchaser had no way to verify whether his seller was tax compliant and correctly paying his taxes. Thus, a purchaser could lose credits for no fault of his own. Now, the GST portal has introduced a feature to check this.

The GST portal has an option to search for GST registered persons, using their GST number. Every registered person is required to display his GST number prominently at his place of business.

Using the above option, if one searches using a GST number, the portal throws up all details such as his registered name, his jurisdiction etc. Further, it also populates the history of GST returns filed by the dealer:

The above feature can be used even without registering on the GST portal. Thus, any person can now check the compliance habits of any seller. This is intended to help the purchaser choose his sellers carefully. A purchaser would avoid dealing with people who haven’t regularly filed their GST returns.

Thus, using pure business logic, GST is encouraging dealers to be compliant. A message is being sent that if you are compliant, your business will increase. And if you are not, then it is there for all to see.

This in fact maybe a precursor to the GST Compliance Rating system, which has also been provided in the act. The GST compliance rating is akin to a performance ranking of all registered persons which tells you how compliant they are with respect to the GST provisions. This will be irrespective of nature, size, or turnover of the business. For example, a rating system can be devised on a scale of 1 to 10, with 10 being the highest compliant and 1 being least compliant.

GST Rating will be based on certain criteria which are yet to be prescribed. However, experts believe that the following factors could play a key role in deciding compliance ratings:

  • Timely payment of taxes
  • Timely filing of returns
  • Timely reconciliations
  • Compliance with various other time limits under GST
  • Cooperating with the GST authorities

It is proposed that a higher GST rating would mean easier refunds, lesser scrutiny assessments etc. A lower rating would conversely mean the dealer would be subjected to more checks. And since the rating is expected to be public, the rating would also let others decide whether they want to do business with a person or not.

The system does not provide any private data and only informs the other person about your compliance habits. Yet one may expect the usual suspects to throw up the bogey of “privacy”. Chidambaram has already used it, this argument is being used to scuttle Aadhar as well, will it be again used to block a well-meaning system intended to change the tax culture of the country?


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