Bringing GST under PMLA could lead to tax terrorism
On July 8 the Indian government amended provisions of the Prevention of Money Laundering Act (PMLA) to allow the Enforcement Directorate and the Financial Intelligence Unit to share information with the GST Network. News reports have tended to view the development as the government bringing the GST Network under the purview of PMLA, complete with its arbitrary powers of investigation and arrest. This is a disquieting development.
The government has already identified thousands of entities registered with the GST Network as fraudulent vehicles for claiming unearned input tax credit (ITC) amounting to thousands of crores of rupees. But unleashing the Enforcement Directorate and the full force of the PMLA to weed out fraud makes the exercise seem more like tax terrorism than tax collection. Even without PMLA and its arbitrary provisions, GST has become a pain for small and medium businesses, particularly at the state level.
Many owners of run micro, small and medium enterprises (MSMEs) have been complaining about visits by tax officials who threaten to find fault or levy tax demands unless their demands are met. Thanks to a legal system that takes ages and costs a fortune to settle cases, entrepreneurs often have no choice but to submit to these extortionate demands. The beauty of the GST framework is that it leaves an audit trail that tax authorities can follow to either end of the transaction chain – at least in principle.
In practice, following such an audit trail requires extensive use of analytics and intelligence to identify potential cases of evasion or malpractice. India’s is the first implementation of GST that is entirely online, so all the data is available for intelligent analysis. The government’s task is to
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