The State Goods and Services Tax (GST) Department has found that nearly 20 per cent of the state’s businesses including hotels have failed to deposit GST in government treasury. That shows that though tax compliance has become much better under the GST regime than it was under the Value Added Tax (VAT) system, there are still a large number of tax evaders.
The tax compliance, which under VAT system was 65 per cent, has jumped to 80 per cent under the GST regime. The state GST department is planning to take harsh action against the tax evaders. GST commissioner Deepak Bandekar has warned that the 20 per cent of businesses, small, medium and big, that have avoided paying GST can be proceeded against as defaulters. GST evaders cannot be allowed to take advantage of the loopholes in the system while a majority of businesses are lawfully complying. The hotel industry in the state was the biggest culprit in GST evasion, despite the fact that notices and regular warnings were issued to many of the hotels by the tax inspectors.
GST was introduced with the aim of making better revenue collection and plugging the loopholes that existed under the VAT system. With 20 per cent of businesses still evading, the GST system has failed to get total compliance. It is a fact that even tax consultants could not understand the nitty-gritties of the new tax regime and took some time to understand them.
Small businessmen lacked resources to switch to the GST system overnight. Their earnings being modest they could not afford to hire the services of a tax consultant. It is not uncommon to hear from businessmen that the GST system is complicated and that the workshops and seminars held by the government to create awareness had not succeeded in making the transition smooth. However, that cannot be an excuse for evading GST! Even if we excuse small businesses for a moment, big businesses like hotels cannot be given that room. Their evasion must be seen as deliberate. For compliance by small businessmen, GST officials need to reach out to them to make them pay GST.
According to the GST department officials, plugging loopholes in the system is a difficult task as different businessmen use different modus operandi to evade tax compliance. The evasion is happening partly because the online system of checking evasion is not ready yet. The checking of the accounts of businesses to detect evasion of tax payment has to be done manually, which is a very cumbersome and time-consuming process.
A physical verification of the returns filed by over 30,000 GST assesses in the state was difficult for GST officials. Until the system is fully online, it cannot be robust, and there will be a section of businesses taking advantage of the weaknesses of the monitoring, assessment and penal system to evade payment of taxes. However, the GST department has to find ways to beat the evaders at their game and identify those who are doing it on purpose and take deterrent action against them. The GST Act provides for arrest in case of taxpayers whose turnover exceeds Rs 2 crore and who are found to be defaulting continuously. For the sake of better tax compliance and sendinga strong message across to businesses it is necessary that wilful defaulters are taken to task and jailed.
When GST was introduced on July 1, 2017, it subsumed different central and state taxes. It was intended to take the country to onevnation, onevtax regime. Other reasons behind GST implementation were to-ensure the country did not become too dependent on the revenue from direct taxes and to enhance tax compliance. Ever since the new system came into being there have been apprehensions about its effectiveness.
With the central authorities finding that there was service tax evasion of Rs 9,660 crore by 2,938 businesses during April-December of 2017-18 in the country, it can easily be surmised that the evaders have managed to hoodwink the new system in the country and also the state. There is a possibility of businessmen using multiple bill books or machines to deceive the system.
The GST authorities need to act fast to make sure that all the commercial establishments strictly adhere to the new system of tax collection. The government should provide all the help to the GST department to ensure that the online system for checking the business activities of the entrepreneurs was made fully functional at the earliest, which alone can help the department to monitor and detect tax non-compliance.