Differentiated GST Regime | 09 Sep 2021
Why in News
The Goods and Services Tax (GST) Council is likely to consider a ministerial group’s report on introducing a differentiated regime for sectors where tax evasion is very high.
- Tax Evasion is an illegal way to minimize tax liability through fraudulent techniques like deliberate under-statement of taxable income or inflating expenses. It is an unlawful attempt to reduce one's tax burden.
GST Council
- It is a constitutional body (Article 279A) for making recommendations to the Union and State Government on issues related to Goods and Services Tax.
- The GST Council is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or Finance and Ministers in-charge of Finance or Taxation of all the States.
- It is considered as a federal body where both the centre and the states get due representation.
Key Points
- Background:
- The GST council had earlier constituted a Group of Ministers (GoM) to consider demands of some States to tax the sectors with high tax evasion based on production capacity rather than output (i.e. Special Composition schemes)
- Capacity based tax is based on manufacturing capacity rather than production.
- Some examples of sectors with high tax evasion include brick kilns, sand mining, and gutkha and pan masala production.
- For instance, Rs. 830 crore of evasion was detected at a single pan masala unit earlier in 2021.
- The GST council had earlier constituted a Group of Ministers (GoM) to consider demands of some States to tax the sectors with high tax evasion based on production capacity rather than output (i.e. Special Composition schemes)
- Concerns:
- Capacity based tax goes against the very structure of GST as one of the objectives was to ensure buoyancy in revenues with increase in sales volumes.
- It could also open the floodgates for such demands from other sectors, like textiles.
- In terms of implementation also it will not be easy and it may not even yield the desired result of curbing evasion, the main reason for which is extremely high tax rates.
- Such a shift would be detrimental to the fundamental idea of GST and send out the wrong signal to honest taxpayers. It would introduce added complexity in the GST structure.
- Capacity based tax goes against the very structure of GST as one of the objectives was to ensure buoyancy in revenues with increase in sales volumes.
Way Forward
As the past composition schemes have not been effective in checking evasion, leading to rampant litigation over production capacity disputes between Revenue authorities and producers, the government should check GST evasion using better data analytics and introducing innovative, stringent legal provisions to deter tax avoidance.