4,900 Fake GST Registrations and Rs 15,000 Crore Tax Evasion: Urgent Reforms Needed

The Central Board of Indirect Taxes and Customs (CBIC) has undertaken a two-month special drive to combat the growing issue of fake Goods and Services Tax Identification Numbers (GSTINs) and associated tax evasion. This initiative, which commenced on May 16 and will conclude on July 15, aims to strengthen the registration and return filing process under the GST regime. The ongoing drive has unearthed startling figures, highlighting the magnitude of the problem and the urgent need for policy changes.

Large-scale Cancellation and Detection of Tax Evasion

During the ongoing drive, an astonishing 69,600 GSTINs have been selected for physical verification across India. Field officers have verified 59,178 of these registrations. What is most concerning is the discovery that 16,989 GSTINs are non-existent, signifying a significant number of fake registrations. To tackle this issue head-on, authorities have suspended 11,015 GSTINs and cancelled 4,972 of them.

The drive has also exposed tax evasion of over Rs 15,000 crore. Tax officers have taken action by blocking input tax credit (ITC) worth Rs 1,506 crore. As part of the recovery process, approximately Rs 87 crore has already been collected.

The sheer number of fake registrations revealed during this drive underscores the urgency for policy changes in the GST registration and return filing processes. These changes should focus on closing existing loopholes, enhancing risk parameters for registration verification, and establishing a more robust framework to combat fraudulent activities.

Financial Implications: Detected Tax Evasion and Blocked Input Tax Credit (ITC)

Physical verification has played a vital role in identifying businesses with fake GST registrations. Tax authorities have been visiting company offices and scrutinizing account books to assess the authenticity of the registrations. However, this approach has presented challenges, particularly for e-commerce players. Many online businesses operate with virtual offices, minimal staff, and no physical account books, which raises concerns about the effectiveness of physical verification in such cases.

The ongoing drive against fake GST registrations has exposed tax evasion amounting to an alarming Rs 15,035 crore. In addition, tax officers have blocked input tax credit worth Rs 1,506 crore. These staggering figures highlight the immediate need to address the issue of fake GST registrations and the subsequent loss of revenue to the exchequer.

Challenges Faced by E-commerce Players

E-commerce players have found themselves in a challenging position due to the ongoing drive against fake GST registrations. Many companies operating across multiple states have come under scrutiny and have been wrongly labeled as fake entities due to the unique nature of their operations. The reliance on physical verification by GST officers poses particular difficulties for online businesses, which often maintain virtual offices with minimal physical presence and no tangible account books.

Over the past month, the industry has raised concerns with the government regarding the challenges faced by e-commerce players during the physical verification process. The nature of online business operations, such as virtual offices and limited physical presence, has led to questions about the efficacy and relevance of physical verification for these entities.

The concerns raised by the industry have prompted engagements with the government to address the difficulties faced by e-commerce players and find appropriate solutions. It is essential for policymakers to understand the unique operational characteristics of online businesses and consider alternative verification methods that are both effective and practical in identifying fake GST registrations.