It will review the panel’s report at its September 17 meeting; Analysts’ outlook is at risk
The Goods and Services Tax (GST) Council is likely to consider a GoM report on introducing a separate regime for sectors where tax evasion is rampant, such as brick kilns, sand mining, and gutkha and pan masala production. There are even tax experts. Caution is urged about such carvings.
The council, which met physically for the first time since the start of the pandemic in Lucknow on September 17, first convened a Group of Ministers (GoM) to consider the demands of some states, including Uttar Pradesh, to levy taxes on these products on a production basis. was formed. Introducing capacity and special structure plans instead of production.
Tax evasion is rampant in these areas – for example, earlier this year a pan masala unit was detected with tax evasion of Rs 830 crore. The seven-member GoM, convened by Odisha Finance Minister Niranjan Pujari, has been tasked to examine the feasibility of moving to a capacity-based tax regime and other options to check tax leakage.
The impact of capacity-based levies for these sectors on the overall destination nature of the current GST design is a matter of concern. Atul Gupta, senior director, Deloitte India, warned that such a change would be detrimental to the basic idea of GST and would give a wrong signal to honest taxpayers.
“The biggest risk of expanding a capacity-based or composition scheme to such areas is two-fold – it is against the very building of GST as one of its objectives was to ensure a jump in revenue along with an increase in sales volume,” he said. Said, adding that it may open the floodgates for such demands from other sectors like textiles.
“Efficiency based taxation system will not be easy to implement and may not give the desired result of preventing evasion, mainly due to extremely high tax rates,” said Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.
Abhishek Jain, tax partner at EY, also stressed that the flip side of trying to curb revenue leakage in these sectors with such measures is the additional complexity in the GST structure.
“There are many aspects of the law which are so intertwined that a change in one aspect can have an impact elsewhere,” Mr. Bose said, emphasizing on issues such as point of taxation, place of supply and eligibility to claim input credit. Gave. Work should be done first.
“A structure or capacity-based levy gives a false indication to an honest taxpayer that revenue officials are not competent to check evasion and, in fact, puts a premium on tax evasion,” said senior director, Deloitte India. Further, it may induce further evasion as inputs of such products may not be taxable against the tax burden of final products based on production capacity.
Mr Gupta suggested that the government should check GST evasion using better data analytics and introduce innovative, stringent legal provisions for tax avoidance. While previous infrastructure schemes have not been effective in preventing evasion, neither have capacity-based systems, the latter leading to massive litigation between revenue officials and producers over production capacity disputes, he pointed out.
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