It took six years for the average monthly GST collections to double from about Rs 85,000 crore in 2017 to Rs 1.5 lakh crore now. And as India’s biggest indirect tax reform rolls into the seventh year, along with revenue maximisation, the focus must shift to tax avoidance, particularly dealing with fraudsters who have increasingly forged documents to claim an input tax credit (ITC). For, tax evasion is both significant and steadily rising. As per the Ministry of Finance data, the total GST evasion detected between July 2017 and February 2023 stood at about Rs 3.08 lakh crore, of which about Rs 1.03 lakh crore has been recovered. Worryingly, GST evasion cases have been rapidly rising, with about 14,000 cases detected in FY23, up from 12,574 cases in FY22. This needs immediate attention.
While it is heartening that GST collections crossed Rs 1.4 lakh crore for 15 months in a row, the revenue growth rate remains uneven among states. Moreover, several goods and services continue to live with the inverted duty structure, where the tax rate on inputs is higher than the tax rate on finished products. This leads to large refunds via input tax credits and lower net tax collections for the government. Fixing this issue helps improve state finances as over 70% of the total GST revenue accrues to states via SGST and devolution of CGST. Last year, the GST Council did rationalise rates on goods and services, increasing the inverted duty structure on printing, writing, drawing ink, LED, etc., from 12% to 18%, but more items need to be covered.
Other areas needing reforms include the invoice matching system. As CAG observed in 2022, the originally envisaged non-intrusive e-tax system, or the invoice matching system, to validate input tax credit based on preventive checks, still needs to be fully implemented. The Department of Revenue is stuck with the traditional interface between the tax officer and the taxpayer, which must change. Likewise, the data maintained by GSTN needs to be more credible.
The CAG observed inconsistencies between the taxable value and declared tax liability, the CGST and SGST, and the input tax credit captured among different returns. In short, while improving revenue is undoubtedly significant, the Ministry of Finance can only claim victory once the underlying issues are resolved.