Rs. 45K-cr tax fraud understated, may cross Rs. 1L cr: TMC to Centre

The total fraud under the Goods and Services Tax (GST) may have already crossed the Rs 1 lakh crore-mark because it was launched “without full legal and administrative preparedness”, and the Rs 45,682 crore evasion detected by the Centre is understated, West Bengal’s finance minister Amit Mitra wrote in a letter to Union finance minister Nirmala Sitharaman.

Mitra asked the Sitharaman to conduct a “thorough investigation” into what he described as “widespread tax frauds and Hawala” under the indirect tax regime that came into force on July 1, 2017.

Mitra wrote that he was “shocked and deeply worried” to learn about Rs. 45,682 crore tax fraud since the new indirect tax regime was rolled out on July 1, 2017. “This is an unprecedented tax fraud of gigantic proportion,” he said, adding that he came to know about the figure from a written reply by minister of state for finance Anurag Singh Thakur in the Rajya Sabha.

“In fact, this massive fraud under GST is understated, as complete data of frauds under SGST [State GST] have not been factored in. If the detected and undetected cases of tax fraud of all states under SGST are compiled, then the tax evasion figure may cross Rs 1 lakh crore,” he wrote in the letter in circulation, dated August 27.

Email queries sent to the GST Council and the revenue department did not elicit any response. The finance ministry could not immediately respond.

Mitra said the problem was that the Centre had rolled out the GST law without adequate preparation. “Indeed, the subdued and below-target tax collection under GST, since its inception, is primarily due to hurried and unplanned introduction of GST, neither all the statutory forms including GST Return were ready, nor the IT [information technology] system was tested,” the letter said.

“I have been saying all along that giving up our concept of invoice matching will boomerang and will lead to widespread tax frauds and Hawala. I had even written a letter to the Union Finance Minister more than a year ago on July 19th 2018, highlighting the potential of fraud and Hawala. But the scale of fraud was beyond my imagination,” it added.

Mitra asked the Centre to take four steps to address the problems. “We need to urgently contain the damage before the country loses another lakh crores of tax, which could otherwise be used for taking up welfare and development programme,” he said in the letter.

His four-point action plan includes a thorough investigation into ongoing evasion; a robust reporting system to generate real-time tax alerts on detection of any suspicious and fraudulent transactions; a list of all cancelled GST Identification Number and PAN details be made available to all officers; and a new return system, with invoice matching, to be in place in October 2019 for large taxpayers, and by January 2020 for all taxpayers.

“The concept of invoice matching is the ‘core of GST’ as there is a two-way flow of credit between the Centre and the states and between the states,” he said in the letter.

Mitra suggested that the FM, who is also the chairperson of the GST Council, discuss GST frauds as a separate agenda in the forthcoming meeting of the apex decision-making body.

According to officials, the next GST meeting is expected to be held in Goa shortly. A date has not been finalised as yet, the officials said, requesting anonymity.