The introduction of Goods and Service Tax (GST) has transformed Kerala into a haven of sorts, a 'wild west' of lawlessness, for tax dodgers. Check posts have been dismantled, but the alternative mechanisms that would have checked inter-state smuggling are not yet in place. Result: the state would lose a whopping Rs 3,000-4,000 crore of GST revenue during the 2018-19 fiscal.
This was a ballpark figure provided by finance minister T M Thomas Isaac. He said there were three ways to smuggle goods to Kerala without paying taxes. One, a trader comes in from another state without an e-Way bill. The GST being a destination-based tax, the e-Way bill is necessary to ensure that the taxes are paid here in the state. It is mandatory for transporting goods worth more than Rs 50,000 and is nothing but an electronic bill of purchase.
Two, there will be an e-Way bill but one will be used to smuggle in multiple consignments of the same product. Three, under-invoicing of goods or tagging a lower price to goods that would be sold in the state at a far higher price. The second and third indiscretions could have been detected had the GST Network been ready. “As it stands, the traders have not even submitted their annual returns. So we don't have anything to cross check the claims of traders,” Isaac said. A fool-proof pan-India GST Network (GSTN) would have also prevented under-invoicing as it would be easy to compare prices of goods in different states.
Now, without the GSTN to bank on, the verification of claims is both arduous and time-consuming. “We will have to manually compare the prices of various commodities in other states to check whether there has been under-invoicing,” Isaac said. Take for instance the last month (December, 2018) when 12 lakh e-Way bills were generated for inter-state transport of goods. “We could verify just about 3 lakh,” a top GST official told Onmanorama.
The state had ambitious plans for surveillance. Cameras were sought to be installed on top of border check post buildings that have become defunct with the advent of the GST. This was technology-aided monitoring.
The cameras were supposed to capture the number plates of vehicles coming from across the border. A number so collected is fed into the computer system at the check post. If the registration number tallies with the number in an invoice uploaded in the GSTN, it means the person transporting the goods has an E-Way bill. If not, the plan was to despatch mobile squads to intercept the vehicle. With the GSTN still not fully functional, the plan has not yet taken off.
The accepted logic was that the GST system, being a destination-based tax, would serve consumer states like Kerala better. The tax has to be paid to the state where the goods or service is sold unlike earlier when the tax was charged at the point of manufacture.
This logic has been turned upside down though. Manufacturing states like Andhra Pradesh, Tamil Nadu and Maharashtra have healthier GST collection than Kerala, the ultimate consumer state. It is an inherent GST advantage that has kicked in, Isaac said. “In these states trade is mostly within their borders. So smuggling in of goods that could deprive them of taxes is relatively less. And since both the supplier and the buyer will want to claim input tax credit, both these parties will egg each other on to take GST registration. As a consequence, there is only restricted scope for tax evasion,” Isaac said.