Fake GST invoices expose loopholes in indirect tax regime

trouble brewing on gst front
Fake GST invoices bring to light the faulty design of the #indirecttax system and its rampant loopholes that create problems for honest businessmen

We are in the seventh financial year since the introduction of GST in India. As we reflect on the past six years, what has it truly achieved? Yesterday morning, we came across news articles saying that fake GST invoices amounting to Rs 63,000 crore have been identified in the last three years. Isn’t it alarming that the country rolled out a legislation riddled with loopholes?

When GST was introduced, former Prime Minister Manmohan Singh predicted it would be a disaster. We didn’t believe him. Former Finance Minister P Chidambaram suggested that the GST needed remodelling. We disregarded these concerns. Several entrepreneurs and associations voiced the opinion that it was too early to implement GST, especially considering we were still recovering from the shock of demonetisation.

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They argued that it would be an unbearable burden, akin to experiencing a heart attack. Unfortunately, the stakeholders were not consulted. Those responsible for collecting and remitting GST were not given a say. There was no trial run of the software, no proper understanding. It was introduced through a trial and error approach, accompanied by much fanfare. And today, we find ourselves in a miserable state.

GST took a toll on industry

GST has resulted in the closure of nearly 36% of industries in India. I won’t solely blame GST for this, but the chaos it brought along compounded the problem. Coupled with demonetisation, the economy experienced a slowdown due to various price factors. There were cases where input tax credits exceeded the output tax credits, and vice versa. Anomalies, software glitches, and a lack of information on how to comply were rampant.

Employers were burdened with the responsibility of ensuring their suppliers remitted GST on time, and failure to do so resulted in draconian laws being enforced. Frozen accounts, halted invoicing, immediate cessation of GST payments, and the threat of arrest loomed over them. Heavy penalties were imposed, and there was no effective mechanism for addressing grievances. Even today, people are struggling to find resolution through arbitration or tribunals, but their pleas go unheard.

Now, consider the staggering amount of 63,000 crores. If this is what we have discovered, imagine what we haven’t. This amount is only the tip of the iceberg. The unaccounted figure could be as high as five lakh crores. And where do these fake invoices lead? They burden the honest taxpayers with additional GST liabilities. Naturally, numerous questions arise when confronted with these facts.

Firstly, this confirms that the GST implementation in 2017 was flawed in terms of software design and structure. Secondly, it appears that GST has primarily aided cheats rather than honest businessmen. There were several loopholes and misconceptions that made it easier for those seeking to deceive the system. Thirdly, why did some individuals create inflated fake invoices? Some wanted to portray higher turnover to secure larger bank loans or boost their market values, while others sought to enhance their IPO prospects. In either case, it is the common man who suffers.

The lack of transparency regarding state-wise crimes is concerning. Who are the promoters behind these fraudulent activities, and what actions have been taken against them? Can we truly believe that the government and law enforcement agencies are clueless about these matters? They seem unable to trace or take effective action. It appears they are more focused on patching up the system than identifying those who have already evaded the law. This situation reveals a shocking truth about our GDP. If such a substantial parallel economy exists, how can we rely on GDP figures? It is a mockery of our implementation efficiency.

India is renowned worldwide as a knowledge hub. We excel in software development and export, yet within our own borders, we have failed. Just look at the GST portal and the countless revisions and modifications it has undergone. Nearly 728 changes have been made to the GST in the past seven years. How long can we continue like this? We find ourselves in an extremely difficult and precarious situation.

Isn’t it true that laws are intended for those who follow them? Unfortunately, in the case of GST, it seems to have been designed for those who evade it. In addition, due to numerous amendments and changes, even law-abiding citizens are now being penalised and harassed by tax authorities. They are left running from pillar to post, seeking resolution. What has happened to the ease of doing business? It has transformed into the most challenging path to navigate. We now fear the system and find ourselves at the mercy of consultants and chartered accountants, who themselves are not fully versed in the complexities of the GST even today.

Any delay results in substantial penalties that entrepreneurs bear the burden of, despite not being at fault. The GST we have in place is half-baked, ineffective, and faulty. It has led to the demise of many honest businessmen, who are now being unjustly labelled as wilful offenders.

Meanwhile, those who were already cheating continue to do so with ease thanks to technology. How can we allow this? The GST system has enabled this situation, and it needs to be addressed, condemned, redesigned, and relaunched correctly. Taking a step in the wrong direction only leads to further missteps. Unfortunately, this is a classic example of how GST has performed. Sadly, we are unable to celebrate this day.