‘It Is Leading To Better Compliance': PwC's Prashanth Agarwal On GSTN Cleansing Drive 

A government notification earlier this month said that the Centre amended the Prevention of Money Laundering Act (PMLA) to bring the Goods and Services Act Network (GSTN) under its purview. GSTN was added as the 26th entity to the list of agencies under the PMLA that have to share information with the Enforcement Directorate (ED) and the Financial Intelligence Unit (FIU) under the PMLA.

The move was criticised and termed as ‘tax terrorism' for honest taxpayers. The Opposition said the move would bring Enforcement Directorate onto regular taxpayers who might slip up in the routine course of business.

Specifically, this would allow agencies like the ED to seek information from the GST authorities and try to prevent tax evasion through the generation of fake tax invoices.

The GSTN is a nonprofit non-government company, provides shared IT infrastructure and service to both central and state governments including taxpayers and other stakeholders.

The move to include GSTN in PMLA was necessitated after it was discovered that out of 69,000 transactions flagged as suspicious, 17,000 were found as fake, potentially leading to a staggering loss of Rs.15,000 crores to the exchequer. 

Now that the dust has settled a little, what does this new information-sharing rule really mean to a business or business owner?

The Core's editor Govindraj Ethiraj spoke to Prashanth Agarwal, Partner, Indirect Tax at tax firm PWC, who termed the move noteworthy. 

"The government's intentions are clear. They have bought in this amendment to look at the fake registrations and the fake input tax credit, which has been a big issue within the GST system and network."

Further, addressing the fundamental concern about the access of GSTN data to ED, Agrawal clarified said the move will enable ED and other agencies to highlight suspicious accounts and transactions to the GST body, action on which will be at the latter's discretion. This step is expected to improve invoicing and compliance with the GST, thereby enriching the government's revenue.

 "This has been an ongoing effort in the previous GST Council meetings and we expect stringent processes to be built to ensure that high-risk taxpayers do not beat the system per se," Agarwal said. 

Here are some edited excerpts of the interview: 

What does this new information-sharing rule mean to a business or the business owner? 

There was confusion when the announcement of amending the PMLA to include the Goods & Services Tax GSTN among the entities that will have to share information with the ED came. The confusion was about whether data would have to be shared by GSTN. Especially since the GST has several ongoing audits and investigations and also has sufficient powers to prosecute. This created a noise both politically and amongst taxpayers, who wanted clarity on what would happen next. 

The government did well to clarify these aspects post the GST Council meeting that took place recently. The Revenue Secretary and others have been clear about the expectation from this amendment. The expectation is not for GST to share any data, it is the reverse. They are saying that if the FIU, or ED come across any suspicious data, then they can share it with GSTN. So thanks to this amendment, GSTN can now receive the data. This also then means that when GSTN receives this data, the tax authorities too get access to it. It is then left to the tax authorities' discretion on whether they want to act on the data. 

The government's intentions are clear - they have bought in this amendment to look at the fake registration and the fake input tax credit, which has been a big issue within the GST system and network. As we are aware there was a drive to identify fake registrations. They looked at 69,000 suspicious registrations, and almost 17,000 have now been found bogus. So, this move is more to enable GSTN to get information about suspicious transactions. They could then choose to act up on it if they believe that there could be more to it in terms of the exchequer losing money. I would say thanks to the clarification, that this is not detrimental to the taxpayers in terms of GST providing information to other authorities like ED. 

 

Are you saying that if GSTN suspects malpractice in the transaction of a business or individual paying GST, they can then pass it on to the enforcement directorate? Is that correct?

No, it is the other way around. Let us say the ED or an FIU is suspicious about a particular business based on a transaction at their end. They can provide that suspicious transaction information to GSTN. Now, the GST, which is the nodal technology administrative body, if I may call it that way, can disseminate that information to relevant tax authorities. So, they get information from the ED or the FIU and if the GST authorities believe there is a need to take action, they can then go for it. So it is not about GST passing GST information about you or me to the FIU or ED. 

 

What prevented the ED or an FIU from sharing information, which they felt was suspicious earlier before this notification was passed?

It is more of a legal enablement, to be honest. Previously too, they could have provided information if there was a need. However, somebody could have disputed and questioned if the information transfer was permitted by the law. We have seen that the government has been quite active in the PMLA and has included more people, even the Ministry of External Affairs, in this issue. So it is more of an enablement. Thankfully, the government has clarified and I believe this is pretty much settled.

 

As you mentioned the GST has been cracking down on fraudulent users-those who are getting credit for something they have not traded or transacted on. So where is that drive today? What is it telling us about the health of the GST system in itself?

The drive has been aggressive and they have looked at the GSTN data. They use the BIFA (Business Intelligence and Fraud Analytics) system within the GSTN. This provides sufficient trends and analytics on accounts they feel are either suspicious transactions or suspicious taxpayers. Based on this data collation, also validated with PAN, GST authorities conducted this crackdown for the last two months. It has now come to a close and I am not sure if it is going to be extended. We now understand from the various statements that have been released that they have looked at more than 60,000 erroneous or fraudulent taxpayers. They have also observed that there are bouquets or areas where the occurrences are high. On an overall basis, if you look at the number, of about 1.4 crore taxpayers you are talking about 60,000. This may not be a significant percentage but it shows a trend. Some are indulging in fraudulent practices using the technology enablement that the Government has bought in. 

However, the best part is that the government now has enough and more data to trace it back. This creates a fear in the mind of taxpayers to not get involved in such activities. It is only the fly-by-night operators who have been trying this per se. The government is also taking more stringent efforts within the GST Act to ensure that nobody plays it.

This has been an ongoing effort in the previous GST Council meetings and we expect stringent processes to be built to ensure that high-risk taxpayers do not beat the system per se. 

 

Do you feel that all this is leading to greater compliance and therefore will translate to revenues to the exchequer?

Yes, of course, it is leading to better compliance. If you look at the trend from 2020, when e-invoicing came over–the process of registering a particular invoice with the government portal-it has, to date, resulted in 50% more compliance. Further, these enforcements have reinforced the government's point of view that there are a lot of gaps that can be filled if the right action is taken based on data. I think the best part about GST is the use of technology and data. The only request that we as an industry would make to the government is to use it even better. In all of this, some good taxpayers are getting harassed unnecessarily, and that is the aspect we believe and expect can be done better so that the normal taxpayer is not required to go through the same process, which somebody who has gamed the system is going through. Anybody who commits fraud should rightly go through the process of prosecution, but a genuine taxpayer should not be caught in the whole thing per se.