MAY 23, 2018

By M G Kodandaram, IRS

THE Goods and Services Tax (GST), the largest tax reform undertaken since Independence, is principally a trust-based regime along with ease and uniformity in tax law, procedures and compliance. It is a matter of satisfaction that we are steadily moving towards such a self-regulated and transparent tax Regime.

With a purpose to strengthen the GST compliance environment, the E-Way Bill (EWB) system as mandated under GST Laws, was introduced in respect of all interstate supplies starting from 1st of April 2018, and is in process to be made applicable for all intra-state supplies, in a phased manner before 1st July 2018. In certain segments, to my surprise, arose a criticism that the introduction of 'One Nation - One e-way bill' is a move towards diluting the assured trust based regime.

Recently one of our colleagues presented a mobile application that enables the capture and forwarding of any Bill / invoice, by any person to the tax administration, so that such information may assist the administration in verification of the authenticity of such documents with that of the details furnished by a registered taxpayer in his returns/accounts. This assists the authorities to find out any deviation/escape/evasion of tax. Such data driven scrutiny in a fair and timely manner may result in early detection of frauds committed by the registered taxpayer. Based on such truthful information, the mandated action to protect the receipts to the public exchequer could be taken at the right earnest by the administration.

But strangely, this experiment in its initial stage itself received brickbats. It was argued that such an effort is much against the assured trust-based principle of GST. I am surprised that - How the verification of truthfulness of the declarations of a registered tax payers, done by the legally authorised authorities, in a fair way, without effecting the day to day business of such entities, can be termed as an act of expressing no trust on such person? Through this article, an attempt is made to explore the implications of trust based regime, to find out whether the act of verifying tax compliance, in a non-intrusive manner, amounts to moving away from the 'Trust based era' or 'is it a positive step towards strengthening such trust.

The GST cannot be levied and collected directly from the citizens / consumers. Therefore such taxes are levied on the intermediaries, (viz., Importers, exporters, service providers, manufacturers, dealers, aggregators etc.) who enable the Governments, collect such stipulated amounts from the consumer / public, while they conduct their businesses / trade. It is the primary duty of all the Governments to provide an easy way / facility for all such taxpayers to voluntarily comply with laws and procedures, and to enable reconciliation of such taxes on time. Further, the taxes so collected from the consumers through the registered taxpayers should reach the treasury without any scope for misuse or evasion. There should be creation of proper atmosphere that encourages voluntary compliance by all stakeholders. In other words, the quest should be on, to evolve a taxation regime, wherein all the taxes collected should reach the treasury without any scope for leakage, as used to happen in the earlier regimes.

It is pertinent to mention here that the said revolution is blooming in the right direction, as suggestion from all stake holders are being taken note of by the constitutionally empowered body viz., the GST Council, and feasible suggestions are accepted, for building a robust and transparent tax system for the Nation.

It is also inevitable for the GST regime to be successful the tax compliance and administration should be largely technology driven. To achieve this, the building of the robust GST Network, a digital special purpose vehicle is the pre-requisite and the backbone. The interface of the registered taxpayer with the tax administration should be bare minimum and should be only through the digital window. The simplified procedures for various processes such as Registration, Returns, Payments, Refunds, etc, are all e-driven. This makes the registered taxpayer to be more transparent and accountable, encourages culture of truthful reporting. This discourages a fraudster from subverting the system to unjustly enrich himself as against the interests of the honest taxpayer.

In GST regime, every stake holder, including the consumer, being the person who ultimately pays the tax, are aware of the laws, procedures and incidence of the rate of tax to be discharged and such taxes are uniform across the Nation. The law further mandates that the details of tax rate and tax amount collected by the registered tax payers to be specifically disclosed in the invoices / bills issued to the buyers / consumers. In GST era, removal of check posts, which were a barrier for free and healthy economic activities has brought much desired freedom for the trade. As the tax rates are uniform, prices of goods and services throughout the country tend to be market driven, and thereby accrue much benefit to the ultimate consumer.

We must be frank here to admit that there is a huge scope for misuse of liberalised approach by certain bad elements. Therefore, the concept of trust-based system needs to be elucidated in such a manner that only deserving registered taxpayer is entertained and encouraged. According to me, we should trust the one who is worthy of such trust, and never a fraudster. Then, how to measure and identify the trustworthiness of a registered taxpayer? This is the primary issue that needs to be tackled. An old adage says, 'Trust, but verify'. 'How truthful the registered taxpayer's declaration', is the right indicator to extend such a trust?

I believe that the Trust based governance should be based on two pronged inbuilt principles, the first being to facilitate the honest taxpayer, and the second, to deny a fraudster any room for indulging in any illegal transaction. This should be done so as to protect the business interests of the honest taxpayer, the consumer and the exchequer. If a dishonest person is allowed to take advantage of the system, to carry out transactions without payment of duty, it will not only act as a detriment to the businesses of the honest person, but also to the states' exchequer. Therefore, there is need for an inbuilt auto-verification measure, so as to identify such fraudsters, penalize and attempt to bring them around; or on failing, must be prevented from doing business. A bad apple spoils the whole bin. Similarly one rotten potato is sufficient to spoil a whole bag. To protect the good potatoes, the rotten ones are to be identified and discarded. However such verification should be done in a careful manner so that the good potatoes are not damaged or hurt. Therefore, there is need of a system to sort out fraudsters with no ill impact on the interests of the honest persons. These measures, in turn, bring in the much desired confidence for the honest taxpayer to conduct his business in a fair manner. Therefore, any steps taken by the administration in this direction are a positive step towards strengthening a fair and trust based tax regime.

Introduction of the National digital e-way bill (EWB for brevity) from 1st April 2018 is one such huge step in this direction. This has eased the movement of goods across the nation with little barriers. EWB is an e-document, required to be in possession by a person in charge of the conveyance, before the commencement of carrying any consignment of goods of value exceeding fifty thousand rupees. Such a document should be generated on the GST Common Portal by the consignee, consignor or transporters, who cause movement of goods. EWBs can be generated by using Web based system or SMS based facility, Android App, Site-to-Site integration or using GSP (Goods and Services Tax Suvidha Provider). This system, in the coming days, is to be tagged on with the RFID of transport system. By doing so, all the movements of goods could be monitored and regulated by all tax administrations in remote mode, without any interference on the transactions of the honest businessman. This eliminates the situation wherein the input credits could be availed based on fake documents, wherein no movement of goods takes place but only invoices are raised by dishonest elements to avail fraudulent Credit. This is also an important measure to put an end to the movement of goods without delivery challans / GST invoices or transporting multiple trips of goods, on a single document, with an intention to suppress supply and to evade payment of duty. This provides the much needed support to the honest taxpayers, as the fraudsters will have to face the heat in case of any violations.

The other method that is being exploited by sham registered taxpayers is to issue fake invoices/bills to consumers, who cannot verify the authenticity of such documents. The amount collected as tax is not reflected or accounted for in the returns filed by them, adds to the unjust enrichment of such fraudster. If this fraud is allowed to bloom, it will be detrimental to the very survival of the sincere taxpayers.

The consumers, who are the real taxpayers, have no means to verify whether the contribution have reached the coffers of the country. This further demotivates, denting the trust based voluntary compliance environment. The consumers, being the real tax bearer, deserve a place in this whole exercise. Hence, it is fair and proper to provide a facility to the consumer to find out as to whether the taxes paid by them have reached the treasury of the states.

In the GST environment, as against the earlier era, the most important feature is that the consumer is in a position to know the incidence of tax. This situation should be further improved by enabling the consumers to verify that taxes paid by them have reached the treasury. This results in building the confidence of the taxpaying citizen and acts as the driving force for fair revenue collection. I feel that there is urgent need for creation of a suitable digital utility, wherein we can request the consumers to upload the bills / invoices issued to them by the registered taxpayers during the transactions. We must be able to store such data and use them in a systematic manner for verifying the authenticity of returns filed by registered taxpayer. This could be done prior to finalisation of assessments, by employing suitable digital tools. In the whole exercise, there should be very less scope for manual intervention, except in cases where mismatch is noticed. During such verifications, if any huge tax evasion is detected, consumers concerned could also be suitably rewarded. This will compel every registered person to conform to the laws in a transparent and truthful manner.

It, therefore, is necessary to devise a digital mobile tool, which could be used by all consumers. Added to this there is need to evolve an automated measure so as to compulsorily verify of such documents sent by the consumers. The consumer should also be intimated electronically the results of such verification so that he can take an active role in the collection of taxes. Consumer must be treated at par with any tax administrator so that they will play a proactive part in strengthening the wealth of the nation. In a democracy a citizen should be empowered so that 'rule by the people' becomes a reality.

"A nation is made only when the taxes are paid".

(The author is Assistant Director, Master trainer - GST, National Academy of Customs, Indirect taxes and Narcotics (NACIN), Bengaluru and the views expressed are strictly personal.)