GST to help in checking of under-invoicing of imports

Khushboo Bhavsar

Tax authorities will be able to detect and crack down on under-invoicing of imports, typically used to evade payment of customs duty, more effectively under the goods and services tax (GST) regime being pushed by the center.

This is because the tax authorities will be able to track the sale prices of imported items with the help of the goods and services tax network (GSTN), the information technology backbone of the proposed GST regime, and check if the importer under-declared prices.

This will enable the Central Board of Excise and Customs (CBEC) to match the import price and the sale price and check tax evasion.

GST, a destination-based tax, will create a trail of different transactions. At every level, traders will have to register invoices to claim input tax credits. In addition, the entire process will be online, with the help of the IT infrastructure. The integration of state and central indirect taxes will also provide a comprehensive profile of taxpayers.

At present, no comprehensive database is available with the tax authorities on the prices of various commodities that are imported. But a GST network, wherein all the data on sale transactions will be captured across states, will help in building this database.

The biggest weapon tax authorities will get under GST will be information, said Bipin Sapra, tax partner at EY, an audit and consulting firm.

“At present, there is no database on prices of commodities. GSTN will give you information and price bench marking. You can question why a good is imported at a low price. If it is a related party, then customs valuation rules can also kick in,” he said.

Further, the customs department’s own IT system can be linked to the GSTN to provide vital information.

“The customs department has an integrated online system with a database on bills of entry and the invoices. Integration of this system with GSTN will help in checking tax evasion, said a CBEC official on condition of anonymity. “If an importer has under-declared the price at the time of imports and sold it at a higher price to save on countervailing duty, this can be tracked under GST,” he said.

A countervailing duty (CVD) is imposed on imports that may hurt domestic producers because of cheaper pricing of imports. But this is levied on the maximum retail price of some items such as mobile phones.

Under GST, CVD will be replaced by an integrated GST or IGST, which will be effectively a sum of central and state GST. All these transactions will now be recorded in GSTN.

With GST being levied at the point of sale, the sale price will also be reflected in the system.

GSTN will operate on a PAN (permanent account number)-based registration, filing of tax returns and a payment processing system that will help in collating all relevant data in one place. The company setting up GSTN is currently in the process of standardizing the IT network across states.