It is now crystal clear that GST will be implemented after the general elections by the new government. However, the issues relating to its design and operations are critical and these need to be taken into account prior to its introduction.
One important issue for the state governments is related to evasion of tax. It is felt that while VAT has been a remarkable reform in the history of state taxation, the magnitude of evasion under VAT is much more than it was under sales tax. It is feared that evasion would further escalate under GST due to the fact that the dealers who sell goods without ‘receipt’ under VAT would continue to do so under GST and the dealers under service tax would be added to this list.
In addition, the amount of tax involved in GST would be much more than the amount of tax presently shown on the invoice. This is because under the current VAT regime the invoice contains the tax element of state-VAT only, as the amount of CenVAT at the manufacturing level gets absorbed into the price of the commodity and, therefore, does not remain transparent. When the GST is introduced, the total tax element would be transparent and will be shown in the invoice of the consumer. This would further encourage the consumers to avoid asking for an invoice and be an incentive for the dealer to sell goods without issuing an invoice.
The experience in most of the states corroborates the fact that consumers buy commodities after a price is quoted by the dealer. When the deal is over and the purchaser asks for a cash memo, the dealer does not issue the cash memo without charging tax in addition to the price already quoted for the commodity. This dissuades the consumer from asking for a cash memo; the consumer is content with the kachha invoice without any name or registration number of the dealer on it.
This being the general phenomenon in most of the shops (except in big departmental stores with cash registers), the continuation of such a practice under GST would further increase tax evasion, not only because the number of dealers would increase but also because of the enhanced amount of the tax element under GST.
In such cases, the transaction remains unrecorded in the accounts of the dealers resulting in the under reporting of sales. Such a