In recent years, the rise of digital transactions, online services, and cryptocurrency has reshaped the global economy. While these sectors offer innovation and convenience, they also present significant challenges in tax compliance. According to a report from the Directorate General of GST Intelligence (DGGI), over ₹2 lakh crore in GST evasion was detected in FY24 alone, with digital transactions and cryptocurrency being key areas of concern.
In an interview with CNBC-TV18, Anil Kumar Gupta, Principal Director General of DGGI, highlighted that these sectors, along with banking, financial, and insurance services (BFSI), continue to evade comprehensive tax scrutiny. This blog explores the growing challenges these sectors present, the loopholes they exploit, and the policy shifts needed to plug GST revenue leakage.
Understanding the Complexity of GST Evasion in Digital Transactions
The shift towards a digital economy has significantly expanded the scope of transactions conducted online. These transactions span e-commerce, digital financial services, and cryptocurrency. However, their inherent complexities make them difficult to track under the existing GST framework.
Gupta pointed out that many of these transactions operate on cloud-based platforms, making data access and monitoring a challenge. Unlike traditional businesses, where sales and transactions can be verified through physical receipts and invoices, digital transactions often lack such transparency, leaving room for evasion.
The 2023-24 fiscal year saw the detection of over ₹2 lakh crore in GST evasion, with substantial leakages in online gaming, BFSI, and other digital sectors. Of the total evasion cases, online gaming led the pack with ₹81,875 crore in 78 cases. BFSI, a sector highly dependent on digital infrastructure, followed with ₹18,961 crore spread across 171 cases.
The Role of Cryptocurrency in GST Evasion
Cryptocurrency, which operates outside traditional financial systems, is another growing area of concern. As Gupta mentioned, the decentralized nature of cryptocurrencies makes tracking financial flows difficult. While many countries are moving towards cryptocurrency regulation, India is still grappling with how to enforce tax compliance within this emerging market.
Transactions conducted using cryptocurrencies are often not registered in traditional accounting systems, and this anonymity offers ample opportunities for GST evasion. The DGGI has flagged cryptocurrency as a major area requiring focused policy intervention.
Traditional Sectors Still Contribute to GST Evasion
While the digital economy presents new challenges, traditional sectors like metals, alloys, and scrap remain significant contributors to GST evasion. These sectors rely heavily on unorganized markets where transactions are underreported or go unrecorded. As a result, detecting tax evasion becomes a daunting task for enforcement agencies.
In FY24, over 1,976 cases of GST evasion in iron, copper, scrap, and alloys were detected, amounting to ₹16,806 crore. Pan masala, tobacco, plywood, and timber are other sectors notorious for evasion, highlighting that traditional industries still require ongoing vigilance.
Addressing the Challenges of GST Compliance
To curb the rising instances of GST evasion, the government is introducing several reforms aimed at increasing transparency and accountability. Gupta emphasized that upcoming policy decisions should focus on enhancing data-sharing capabilities, particularly for sectors like BFSI and online transactions, where most GST leakage occurs.
A major focus of the DGGI is improving access to cloud-based data, which would allow authorities to track digital transactions more effectively. Furthermore, Gupta suggested that the new leadership of the DGGI prioritize these sectors to reduce revenue leakages.
Recent Measures to Combat Taxpayer Harassment
The government has also taken significant steps to address concerns related to harassment during GST raids. Gupta clarified that new guidelines ensure that taxpayers’ rights are protected during investigations. A grievance redressal mechanism has been set up to address any allegations against officers, aiming to improve trust between businesses and tax authorities.
Conclusion: What Lies Ahead for GST Compliance?
The fight against GST evasion is ongoing, and with the rapid expansion of the digital economy, new challenges will continue to emerge. However, by focusing on key areas like digital transactions, cryptocurrency, and traditional sectors, the government can make significant strides in plugging revenue leakages.
As the DGGI moves forward under new leadership, policies that promote data transparency and cloud-based monitoring will be crucial. Stakeholders in the digital and traditional sectors must ensure that their operations align with GST norms to avoid penalties and legal consequences.