The Tale of Tax Evasion in India: Pre-GST Vs Post-GST

Abstract  

Over the years India has witnessed several changes to the taxation system. One of the most phenomenal changes was the introduction of the Goods and Services tax. This revolutionary step changed the way our tax system functioned entirely, eliminating the cascading effect of the previous regime. One of the main objectives of this tax was to curb the rampant Tax evasion. Taxpayers in the previous regime had found several ways to evade the cascading effect of taxes, by introducing GST the government not only increased transparency but offered a system mutually beneficial for the government and the taxpayers. The paper explores and delves into the intricacies of the tax system prevalent before 2017 and after that. Initially, the paper gives a detailed overview of the tax system in India over the years and then provides in-depth information about tax evasion in India. Then it explores the landscape in the country before the introduction of GST. The maze of taxes is explored and the problems faced under that are explained. Further, the paper explains the situation after GST in India. The framework of GST and key features that make GST efficient are explained. The features of GST like e-way bills, input tax credit mechanism, and increased use of data analytics in GST, that make it efficient were delved into. Despite the stringent measures under GST, there were ways to evade tax and the paper informs about that as well. With the case studies about evasion, pre and post-different ways of evasion and how that has evolved over the years are understood. The paper concludes with recommendations to curb the new ways of evasion that taxpayers have discovered. Thus,  giving people fewer opportunities to evade and making the system of taxation increasingly effective.

Keywords- GST, Tax evasion, Input tax credit, E-way Bills.

Introduction

Tax is a compulsory levy on every citizen, a mandatory exaction by all citizens. It is taken by public authorities and used for public welfare. It does not follow the principle of quid pro quo, meaning it is not an act of exchange per se. There are myriads of taxes, such as income tax, corporate tax, property tax, customs duties tax, goods and service tax, etc and they are classified as direct or indirect taxes. Tax is one of the sources of government revenue amongst others and over the years the taxation system of India has experienced drastic changes. A major change was the introduction of goods and service tax (GST) on 1st July 2017, with the motto being “One Tax, One Market, One Nation .“ This tax subsumed several central and state taxes like the state VAT, central sales tax central excise duty, etc.GST has widened the tax base and made the whole nation a common market. GST had several features like the introduction of e-way bills and input tax credit mechanisms that would prevent tax evasion. Tax evasion is illegally avoiding tax or refusing to pay tax. This involves an activity in which people understate or put in false income, or hide the sources to reduce their tax liability. It can also be related to misreporting income, showing deductions that lack proof, filing inappropriate returns, etc. Tax evasion is unlike tax avoidance and employs illegal methods. Tax evasion is the primary cause of low government revenue.  GST was introduced to help prevent such illegal activities and tracing such activities over the years will aid in understanding what effect GST has on tax evasion.

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