The portrait of Mahatma Gandhi is displayed on Indian rupee banknotes in an arranged photograph. Photographer: Brent Lewin/Bloomberg

Spike In Detection Of Indirect Tax Evasion As Scrutiny Resumes After GST Breather

Indirect tax evasion detected in the first five months of the financial year more than doubled over the year-ago period, according to official documents reviewed by BloombergQuint, as the taxman resumed scrutiny after going slow during transition to the goods and services tax.

In the previous financial year, the focus was more on preparation and stability of the new indirect tax regime, said a senior official on the condition of anonymity.

The Directorate General of Goods and Services Tax Intelligence detected indirect tax evasion worth Rs 18,656 crore in April-August 2018 compared with Rs 7,031 crore in the year-ago period.

Generally, tax detection is an ongoing process, but in the last financial year the taxman couldn’t do it as the department transitioned to the GST and efforts were made to stabilise the new process, the official cited earlier said.

Krishan Arora, an indirect tax partner at Grant Thornton India LLP, agreed. The service tax audits initiated by the tax authorities couldn’t possibly be completed before GST implementation in 2017 as the department’s focus was on rolling out the new indirect tax regime, he said. These audits resumed after the GST regime settled and the high detection in service tax could be due to the conclusion of these audits in 2018, according to Arora.

“Parallelly, tax authorities initiated many new audits in the last financial year to check GST evasion as well, which could have resulted in the significant rise in the overall number,” Arora said.

Total evasion detected by the directorate stood at Rs 21,869 crore as on Sept. 14, 2018, according to the documents. Nearly Rs 3,000 crore of that was attributed to GST cases. The comparative year-ago numbers were not available. The detection in the first half ended September also reflects scrutiny made in the previous financial year ended March 2018.

For the full financial year 2017-18, the taxman detected an indirect tax evasion of Rs 25,677 crore compared with Rs 15,048 crore in 2016-17, according to the documents.

Tax Recoveries Jump

Recoveries from those evading indirect taxes in India has jumped over fivefold to Rs 4,015 crore in April-September 2018 as compared with about Rs 700 crore in the corresponding period last year, a government official told BloombergQuint citing official data. Recovery figures for the years ended March 2018 and March 2017 were not available.

Although recoveries in the first half of the year may seem to have increased significantly due to increased detection, the gap between detection and actual recoveries could be due to taxpayers disputing demands raised by the taxman by approaching higher appellate fora, said Arora.

Abhishek Jain, an indirect tax partner at EY India, said: “With the introduction of e-way bills and concerted efforts by the government in data analytics, more cases of GST evasion are getting detected and corresponding recoveries are also going up.”