Amit Mitra, Principal Chief Advisor to West Bengal Chief Minister and Finance department, on Monday, expressed concerns over the massive GST frauds proliferating across the country and the web of regulations “overpowering” MSMEs forcing them to deregister back to informal status.

In a letter to the Union Finance Minister, Nirmala Sitharaman, Mitra urged to convene a GST Council meeting exclusively focusing on these two issues so as to find sustainable and holistic solutions to control frauds and simplify regulations keeping the MSMEs in mind.

Fraud from GST invoices

“It is astonishing that from your own government’s admission in the Lok Sabha, ₹1.15-lakh crore of fraud had been detected from GST invoices between 2018-19 and 2022-23. It is also shocking that out of 69,426 GST identification numbers verified during the last two months, 20,893 were found to be simply non-existent — fraudulent. Amount of GST evasion detected during the last two months came to the tune of ₹19,638 crore,” he said in his letter.

Further, out of the 1.4 crore businesses registered with GST, only 0.42 per cent of registered tax payers were verified, of which close to 30 per cent were found to be non-existent and fraudulent registrations, he said, indicating that the amount of fraud could be much more if all of the 1.4 crore businesses registered were to be verified.

Drawing attention to the 39th meeting of the GST Council held in March 2020, he said, Nandan Nilekani had estimated fraud of ₹70,000 crore up to 2020, out of which ₹38,771 crore was on account of Input Tax Credit (ITC) fraud symbolising direct loss to the exchequer. Then again, in August 2021, the MoS for Finance had put the quantum of fraud between 2020-21 and 2021-22 (till July 2021) at ₹56,805 crore.

“I have repeatedly pointed out that the system as proposed at start should have followed GSTR 1-2-3 Return Filing methodology which was based on the concept of two-way communication and matching of information between the suppliers and the recipients, on the basis of which GSTR 3 return was to be filed, “ Mitra said.

“But GST was implemented with the truncated GSTR 1-3B return system without any system based checks. Even the present system of return filing, where ITC is allowed on the auto populated details of GSTR 2B, is only an extension of the earlier flawed system and is fundamentally different from the concept with which the original return system was conceived to check fraud,” he added.

Web of regulations

Talking about the series of regulations and amendments, he said, as many as 770 notifications have been issued till date under GST; close to 178 prescribed forms and 191 circulars have been issued; 75 sections have been amended under CGST Act; 129 CGST rules have been amended and the rates of more than 400 items of goods and around 100 categories of services have been changed till date.

“Though the intent of GST was to bring in the informal sector entrepreneurs into the formal arena through a simple and transparent GST system, the unfortunate fact today is that 90 per cent of the GST is contributed by large taxpayers who can cope with this complex web of regulations,” Mitra said.

Such complex set of regulations is likely to force many registered MSME customers to deregister as they are unable to cope with the GST structure, he added.

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