Premature GST will drain National Exchequer

Premature GST will drain National Exchequer
By Asish Kumar Raha
(formerMemeber, CBEC, & advocate)


First Discussion Paper on Goods and Services Tax (GST) in India, released by the Empowered Committee (EC) of State Finance Ministers on November 10, 2009, brings out the schematic blueprint of GST with several loose ends.

One distinctive and welcome feature of GST is the concept of Inter-State Goods and Services Tax (IGST), found missing in the prevailing State VAT. It is, no doubt, an improvement over the current practice of treating inter-state transactions as export or import for the purpose of granting refund or levying State VAT sans credit, as the case may be, thus snapping the credit chain the moment the goods cross the state border. The GST template in the Discussion Paper suggests seamless flow of credit throughout the country along the supply chain up to the retail stage and has thus addressed one of the fundamentals of VAT/GST. But to make that concept work satisfactorily, other fundamental requirements needed to be addressed as well. This is where the Discussion Paper is found wanting. Before we examine the shortcomings, let us first discuss the salient features of the IGST model.

First of all, while the threshold of gross annual turnover of Rs 10 lacs, both for goods and services, has been recommended for all the States and Union territories, the tentative decision is to persist with the current threshold of Rs 1.5 crore for Central GST (CGST). Secondly, it has been decided that Centre would levy IGST which would be inclusive of State GST(SGST) and CGST on taxable goods and services, with appropriate provision for consignment or stock transfer of goods and services without paying any such tax. Thirdly, while paying IGST, the inter-state seller can utilize credit of IGST, CGST and SGST. Fourthly, the exporting State will transfer the credit of SGST used in payment of IGST to the Centre for onward transmission to Destination State wherein the importer will claim credit of IGST while discharging his tax liability. Further, it is decided that export shall be zero rated with provision for refund of unutilized credit. Fifth, the Centre will work as a clearing house to verify the claims and inform the respective governments to transfer the funds. Lastly, it is stated that the major responsibilities of IT infra-structural requirement will be shared by the Central Government through the use of its own IT infra-structure facility. The synergy between the States IT infra-structure including TINXSYS and Central IT infra-structure will also be addressed. All inter-State dealers shall be e-registered and correspondence with them will be by e-mail. Consequently, it was hoped that compliance level would improve substantially.

Let us now dwell upon the shortcomings and pitfalls that have been overlooked in the First Discussion Paper.

A. On the need for uniform threshold limit:

Different threshold limits for SGST and CGST, as has been indicated in the First Discussion Paper, will offer serious challenge to synergy and exchange of data between the Central IT System and those of the States. Besides, such divergence will pose insurmountable difficulties for the Centre while implementing IGST model. To be more precise, a State assessee for SGST (with an annual turnover of less than Rs 1.5 lac) will also be a Central assessee for the purpose of IGST only, but it will be deprived of input credit of CGST on account of its turnover being less than the threshold, thus attracting limited cascading effect. Besides, Central Government is not likely to have any trading or manufacturing level data of such non-assessee which will seriously affect e-scrutiny of its IGST Return. Therefore, in the interest of efficient working of the system, it is important that the threshold limit in respect of SGST and CGST becomes uniform.

B. On tax liability upon stock-transfer of goods and services:

The First Discussion Paper suggests that there should be separate provisions for consignment/stock transfer of goods and services, meaning thereby that such consignment/stock transfer should be free of IGST (or any GST for that matter), as otherwise there was no need for separate provisions. This would be fraught with intricacies. The question that would logically arise is who will be responsible for crediting SGST collected in the exporting State to the Destination State. Surely not the Centre if no IGST is levied. If it is the exporting State which will be required to credit the amount directly to the Destination State, a separate procedure is to be contemplated in respect of consignment/stock transfer only. This will add to complication inasmuch as the IT programme pertaining to inter-State transactions is supposed to be developed by the Centre and not the States. Besides, inter-State stock transfer in the absence of e-tracking may end up by snapping the credit chain so far as SGST is concerned. Viewed in perspective, it is, therefore, advisable that stock transfer should also be subjected to GST on deemed value, a concept well known in indirect taxation.

C. On utilization of IGST, CGST and SGST credit:

To enable e-scrutiny of credit utilization, the Return format of the assessee ought to provide for separate column for each category of tax paid, viz. IGST, CGST and SGST and each category of input credit availed of (with opening and closing credit balances). Even though Centre is not responsible for collection of SGST, data pertaining to SGST will be relevant for e-scrutiny of IGST at a macro level. Since inter-State trade is common place, a consolidated Return for central GST (inclusive of IGST and SGST) is advisable rather than going for separate IGST Return.



D. on transfer of SGST credit to the Centre and refund of unutilized credit against exports:

It takes about two years, if not longer, for an exporter to get VAT refund arising from the export of goods to another State. There is no reason for optimism that SGST credit to the Centre in a case of inter-State trade will materialize in a shorter period, particularly when verification process at the end of the exporting State will be far more complex. The following illustration will elucidate the above proposition.

Illustration:

X (manufacturer of tyres) in State A receives his inputs from States B, C and D and sells his finished product (tyre) to Y (car manufacturer) in States E and F on payment of IGST after availing of credit of IGST, CGST and SGST. Y transfers the cars to Z (dealer) in State G on payment of IGST after availing of credit of IGST, CGST and SGST. The cars are eventually sold to consumers in State G.

In this illustration, SGST credit will have to be transferred in the first instance by States B, C and D to the Centre for transmission to State A, and then by State A to the Centre for States E and F, and thereafter States E and F to the Centre for State G. Since there is no mechanism yet to e-capture transaction level details, it would be extremely difficult for the exporting States to verify facts from the aggregated data captured from the Return and to satisfy itself that the SGST credit utilized by the exporter was in fact deposited to its Treasury. Secondly, if A is yet to receive SGST credit from B, C or D in full via the Centre, A will have its justification to withhold the payment to the Centre for States E and F. Thirdly, the fear that once the SGST credit is transferred to the Centre, it would not be possible for the exporting State to get back the amount even if investigation proves that the credit was fraudulently availed would deter the latter from transferring SGST credit to the Centre without thorough scrutiny and verification.

In the event of understandable delay in the transfer of SGST credit to the Centre from the exporting State, which may go beyond two years, there are only following two possibilities. Either the Destination State will starve of revenue or the Central Exchequer will bear the cost, having undertaken to meet the revenue deficiency of a State after GST has been introduced. On a rough but reasonable estimate, about 90% of the transferable SGST credit is likely to remain outstanding in the first two years, and if the Centre is to bear the brunt of it, Hon’ble Union Finance Minister should be prepared to accept sharp depletion of revenue on account of systemic failure.

As regards refund of unutilized credit of SGST against exports out of India, the First Discussion Paper does not throw any light. It is, however, not difficult to foresee insurmountable difficulties for exporters to obtain such refund for want of clarity as to which State will be responsible for granting refund in a case where IGST has been levied but goods have not been consumed in the Destination State for reason of its export out of the country.

E. On the Centre working as a Clearing House:

The Clearing House concept to administer inter-State GST was earlier conceptualized and proposed for implementation in member countries in 1990s by the European Commission (EC) following origin principle. But it was eventually given up owing to absence of an effective IT system in member countries to capture transaction level data in real time. When internal fiscal frontier in the EU countries was removed in the early 1990s, the European Commission proposed that each country levy tax on exports to other member States, and the importing member then allow full credit for that tax against its own VAT. Under a Clearing House arrangement, the importing country would then reimburse the exporting country for that credit. Consequently, revenue in each country would be exactly the same as under Zero rating exports. The GST model proposed by the Empowered Committed in the First Discussion Paper is based on destination principle and that explains why the transfer of credit will be in the reverse direction, i.e. from the exporting State to the importing State.

Be that as it may, an effective IT system to capture transaction level data was recognized by European Commission as sine qua non for effective implementation of borderless GST system. There is no valid reason why we should think otherwise in respect of IGST. It is pertinent to mention in this regard that on the Recommendation of Ramanan Sub-Committee, the Empowered Committee of the Finance Ministry headed by Dr. Parthasarathy Shome recommended development of an electronic self-regulated invoice capturing module for credit accounting, which, however, could not be implemented for administrative and technical reasons. It is time to re-visit and to put into effect the said recommendations in the interest of successful implementation of GST in India. If GST is introduced before IT system to capture transaction level data is in place, there is every possibility of gross abuse of the system by some unscrupulous traders, thereby raising the price of compliance too high to be competitive.

F. On substantial improvement of compliance level owing to IT infra-structure:

Realistically, neither the Centre nor the States have an IT infra-structure in place, which is capable of meeting GST requirements of credit accounting and doing e-scrutiny of the Returns filed. The existing Automated Central Excise and Service Taxes (ACES) Module is a little more than dematerialized Return with aggregated data that would be quite inadequate to address the issue of inter-State credit accounting or to detect credit fraud. It has taken nearly 4 years to commission ACES. Obviously ACES needs to be replaced by a much more effective IT credit-accounting GST module which would capture transaction level data, if not in real time, at least off line. What is needed is a realistic projection of time for development of the said IT system with wide area network and appropriate server back-up and the introduction of GST may be deferred till then unless we are desperate to introduce a half-baked taxation system to invite chaos.

Incidentally, the experience of GST compliant countries, even with their strong IT infra-structure, is not at all encouraging, so far as tax evasion is concerned. On a modest estimate, the UK loses annually over 10 billion sterling pounds of VAT through Missing Trader and carousel frauds while other EU countries collectively lose about 100 billion Euros annually on same account. In Canada, since the inception of GST in 1991 till March 2003, about 600 individuals and businesses have been convicted of GST fraud. On a modest estimate, tax evasion in India may work out to 40% of the total CENVAT collected by the Centre and considerably higher in States. Given the above background of lack of effective IT infra-structure and the adverse experiences of western countries and India as well regarding level of tax compliance, we do not find any ground for optimism that GST per se will substantially improve compliance level. On the contrary, a lax system may be enough to sap the growth and vitality of compliant Indian industries and businesses.

TRIPS-plus Customs laws add a new dimension to IPR

A signal achievement of Mr. Chidambaram that went almost unnoticed was the introduction of border measures to combat IPR infringements effectively in form of the Intellectual Property Rights (imported Goods) Enforcement Rules, 2007, notified on May 8, 2007, under section 156(1) of the Customs Act (refer www.cbec.gov.in for details). It was a landmark decision of the Government for two reasons. First, the Rules have entrusted Customs officers with comprehensive powers not only to intercept and detain infringing goods in pursuance of the Border Measures stipulated in Articles 51 to 60 of TRIPS (Trade-Related Aspects of Intellectual Property Rights) but, being read with sections 110, 111, 112 and 135 of the Customs Act (1962), also to seize, adjudicate and confiscate offending goods and to penalize and prosecute the offender. Second, while border measures under TRIPS are restricted to Copyright and Trade Marks only, the above Rules now encompass patent, design and geographical indications also. It is thus evident that Mr. Chidambaram has gone beyond the mandate of TRIPS on both counts.

It is pertinent to mention here that both Japan and China, like European Union countries and the USA, had expanded the scope of IPR enforcement at borders by covering patent and design, apart from copyright and trade marks. Besides, Japan has amended its Customs laws to impose a fine on the infringer up to 7 million yen and imprisonment up to 7 years. China has also empowered its Customs officers to confiscate infringing goods and to penalize offenders. Both the countries, like in the case of EU countries, have provided for Customs intervention in respect of both imports and exports. India, on the other hand, has restricted Customs intervention to imports only and not export as yet. Maximum penalty provided under section 112(i) of the Customs Act for an infringer of IPR is cent percent of the value (same in USA) and maximum imprisonment under section 135 (ii) is for a term of 3 years. As for European countries, it is left to each member country to decide whether the power to determine infringement of IPR at borders and to levy penalty shall be entrusted to Customs or some other authority including court (ref. Council Regulation (EC) No.1383/2003 of 22 July, 2003). Majority of EU countries have, however, assigned this power to the Customs.

Apparently though India is lagging behind Japan and China in border enforcement of IPR in that it has not covered exports as yet in its ambit, Mr. Chidambaram has stolen a march over them by integrating recordation of right holders’ notices with highly sophisticated Customs Risk Management System (RMS), perhaps the first such attempt in the world. This has led to multiple benefits for right holders apart from enabling automated detection of IPR infringement, based on right holder’s inputs. In the first place, right holders are spared the trouble of multiple recordations with Customs at all vulnerable points of entry. Second, single recordation reduces the financial and administrative burdens of the right holder in terms of security, notice fee and logistics. Third, Customs RMS through ICEGATE instantly incorporates those automated data to generate alert at all Customs stations where RMS is functional, rendering it rather impossible for suspect consignments to escape detection. Fourth, the System has enabled central monitoring and supervision.

A question may arise whether it was wise on the part of the government to entrust Customs with the power to determine infringement of IPRs, particularly Patents, designs and Geographical indications, inasmuch as such determination presupposes expertise that Customs officers generally lack. While it is possible for a trained Customs officer to determine infringement of copyright and trade marks, based on the materials provided by the right holder, the issues relating to patents, designs and geographical indications are indeed far more complex, requiring external support or consultancy before coming to any conclusion.

The contrary proposition of letting Customs merely detain suspect consignments, leaving it to the court to determine IPR infringement has certain obvious demerits. First, long-drawn court proceeding would invariably lead to accumulation of demurrage and detention charges in respect of detained cargo, which would be payable to the custodian and the owner of detained containers respectively. This extra financial burden may have to be borne by the right holder eventually. Second, confiscation of imported counterfeit and pirated goods by Customs upon determination of infringement by court would suggest redundancy and non-application of mind by the former. Third, it would lead to multiplicity of proceedings, there being two appealable orders, one by the court and the other by a Customs officer. Resultant confusion as to appellate jurisdiction would thus become unavoidable. On the balance, therefore, Mr. Chidambaram was justified in making Customs laws on IPR comprehensive enough to deal with infringing goods holistically.

It is time for the trade, both domestic and international, to draw optimum mileage out of the simplified but far-reaching Customs laws and procedure to protect their intellectual property rights.

Meet the challenges for a unique GST

The prospect of a common goods and services tax (GST) being implemented from April 1, 2010, turns tax-reformers, businesses and governments (both at the Centre and states) euphoric for valid reasons. They all foresee simplification of procedure, lesser tax burden for businesses with credit running along the supply chain thereby eliminating cascading effect on prices, and a substantial growth in revenue collection. In short, a win-win situation for all. However, all these expectations can be belied if the challenges confronting its implementation are not effectively met.

The first challenge comes from our federal structure itself and the sign of crack in the concept of common GST is already visible. It is significant that the refrain of the Union Finance Minister about the single GST coming in force from April 1, 2010 was missing in this year’s budget speech. It is clear by now that there will be no common GST and that GST for the Centre and the States will run in parallel. Hence, the businesses will necessarily have to deal with more than a single administrative authority for the same goods, like what they have been doing now.

The second challenge emanates from the compulsion of reconciling currently prevalent destination principle with the supply chain credit management under GST that smacks of origin principle. There is obviously a contradiction which needs to be resolved. To be more precise, under the current VAT system, the movement of goods from one state to the other is taken as export, and since export conceptually is tax neutral, it is the importing state that has a right to collect VAT while the exporting state refunds the tax collected. This, in short, is the destination principle which currently governs State-VAT, but not Central VAT (CENVAT) which works on origin principle. With the introduction of GST, the state barriers will disappear rendering the concept of import and export in inter-state transactions irrelevant. The only connecting thread from origin to end would be the credit of GST paid. In such a system, the destination state is expected to collect net tax on the value added, which is substantially lower than what it collects now under destination principle, thus affecting industrially weaker states like the north-eastern, Uttarakhand, Himachal Pradesh etc. However, it is technically possible to synthesize the destination principle with the origin principle by allowing end to end credit upfront, with back-end revenue adjustment on destination principle through clearing house mechanism. In no country, however, such synthesized system is in place.

Way back in 1985, EU Commission (EC) proposed to adopt the origin principle with a clearing house mechanism, but kept its implementation postponed owing to disharmony of VAT rates and governing laws, and consequently the possibility of major distortions in intra-community trade. Nevertheless, we need not be pessimistic about trying a symbiotic approach through innovative automated programmes, thereby setting an example for other countries.

The third major challenge arises from continuance of organized tax-evasion through unaccounted transactions, under-invoicing and credit-frauds under State-VAT and CENVAT. If GST is not safeguarded by a risk management system, it is likely to create an evasion-prone market that would witness gradual elimination of tax-compliant businesses. We should learn from the experience of other GST-compliant countries in this regard. On a modest estimate, the UK loses annually over 10 billion sterling pounds of VAT through Missing Trader and carousel frauds, while annual loss of VAT by the EU countries collectively on same account is roughly estimated as 100 billion Euros. In Canada, since the inception of GST in 1991 till March, 2003, about 600 individuals and businesses have been convicted of GST fraud. In Brazil, the GST experiment has failed for same reasons. The only long term solution as a safeguard, as has been envisaged by the EU Commission, is real time settlement of all VATable transactions. In India it is technically feasible to put in place a real time accounting system to raise the compliance level.

The last major challenge of GST comes from the massive expansion of tax base and the resultant demand for additional staff. As for the Centre, once the threshold limit for CENVAT is reduced from Rs 150 lakhs to the state level, and dealers and retailers are covered, the assessee base will expand exponentially. Similar expansion is likely in states for reason of inclusion of service taxes in its domain. It is well-nigh impossible to manage the expanded workload with the existing workforces unless the entire workflow is automated with an effective risk management system.

The question is, can we bring about GST on the scheduled date after meeting the above challenges satisfactorily? If we do, India will no doubt set a standard worth emulating.

E-mail id: akraha@gmail.com

A modified ‘Deemed Credit’ to mend VAT distortions

The reasons why Value Added System (VAT) scores over any other system of indirect taxation are twofold. First, it eliminates cascading effect on the assessable value of goods and services by rendering such value tax-neutral. Second, by providing a credit chain from origin to end, the system sets up a self-corrective mechanism by substantially reducing, if not eliminating, the risk of tax evasion. To be precise, if tax is evaded by unaccounted clearance, the credit chain automatically gets snapped and at the next accountable stage, whether manufacturing, wholesale, or retail, the full tax burden with cascading effect would have to be discharged for want of credit. If tax is evaded by under-valuation, the buyer-assessee would get a lesser credit and incur consequently a higher tax liability. Hence, it is assumed that the trade would not gain by attempting to evade tax in an ideal VAT or GST regime. The question is, do we have an ideal VAT regime at the centre and the states.

As for the states, in the absence of inter-states credit operability, credit in State-VAT does not run along the supply chain that may originate in one state and terminate in another. Therefore, the current system has an inherent lacuna which can only be plugged with the introduction of GST when credit chain will in all likelihood be operable in inter-state transactions. In Central VAT (CENVAT) also, for reason of high threshold limit for levy on goods (Rs. 1.5 crores annually) and also for restricting the levy to manufactured goods only, a large number of transactions are kept outside the purview of CENVAT thereby providing an incentive for tax evasion.

The case in point is the manufacture of ingots, rods and wires of copper, steel, Aluminium etc. out of market scraps and waste procured by the unorganized sector, mostly from dealers, without any proof of duty payment, and hence without an input credit. Since value-addition in respect of those productions, particularly of copper and aluminium, is minimal, the duty incidence on wiring and re-wiring units becomes almost prohibitive in the absence of input credit. This explains why those manufacturing units in unorganized sector pay only a fraction of the CENVAT that is actually payable, primarily to survive in a competitive market where large units invariably utilize CENVAT credit on recycled scraps and waste generated in the course of manufacturing process. As a logical corollary, the unaccounted production and clearances by the unorganized sector to evade 16% CENVAT lead to simultaneous evasion of 4% State VAT, and eventually a minimum of 33% corporate tax as well, leaving those activities outside the ambit of GDP reckoning. And the evasion continues up to the finished stage in which it reaches the ultimate consumer. The only remedy to the above evasion-prone, distorted market condition lies in the revival of ‘deemed credit’ that once co-existed with the MODVAT (Modified VAT) scheme from its very inception (1986), but was later rescinded by an Order of the ministry of Finance (Department of Revenue), dated 1.3.94, purportedly in consideration of gross misuse.

The misuse was primarily of two types. First, some inputs were suspected to be non-duty-paid or exempt in which event deemed credit was not admissible. Second, there were instances of forgery and tampering of invoices to enhance the quantum of deemed credit, and to reduce the net duty liability. However, the cure by way of rescission of the scheme of Deemed Credit was worse than the disease itself as it led to massive unaccounted production and clearances to evade not only CENVAT, but State VAT and corporate tax also, besides having its corrupting influence on tax officers.

What then is the remedy? Should we suggest revival of the old scheme of ‘Deemed Credit’ to remove current distortions in CENVAT and VAT where a large number of transactions remain unaccounted? To revive a two decades old concept sans modification would certainly be anachronistic.

The modification that is worth our consideration is to allow deemed input credit at the exit stage rather than at the entry stage, after ensuring duty liability of inputs in question. Currently, under indirect subtractive computation method, an assessee is permitted to pay entire duty from CENVAT credit account, till it is exhausted. In the proposed scheme, the assessee shall not be permitted to pay entire duty from Deemed Credit account, at any given time, so that his credit utilization does not exceed the percentage fixed, during any assessment period. Once this is done, all transactions of the rolling and re-rolling units are likely to enter into books of account, boosting central as also state revenue considerably. At the same time, prices of wires, cables etc. are likely to stabilize at a lower level once cascading effect is removed and the cost of evasion eliminated.

Before the Centre and the States venture into GST, it is imperative that the present evasion-prone market is rendered stream-lined and accountable by way of implementation of CENVAT and VAT in letter and spirit.

Is GST in India on the right track?

Amidst din and bustle of economic downswing, the governmental commitment to introduce GST from April 1, 2010, seems to rest on the backburner. One practical reason for this apathy is the intervening polls at the Centre as also in a number of States and the uncertainty whether the ruling parties will return to power to remain accountable for non-implementation of GST.

In the current economic depression which is likely to continue, GST would have been a welcome step for three reasons. First, it would lessen the burden of taxes on consumers considerably by eliminating cascading effects of all taxes on the price, thus rendering products and services cheaper. Second, an electronic data interchange (EDI) system in GST, as envisaged, will considerably reduce the cost of compliance for the Trade, usher in an era of fiscal discipline and consequently encourage larger investment in India. And thirdly, GST is likely to inflate the tax kitties of the Union and the States owing to enhanced efficiency resulting from electronic accounting of intra-state and inter-state credits, through the mechanism of a clearing house.

The above three reasons would provide enough justification for the States Empowered Committee (SEC) and also for Union Finance Ministry (UFM) to accord priority to GST implementation. However, the progress made so far in this regard makes one reasonably sceptical. The case in point is the prevailing vacillation to settle certain key issues such as whether there should be a single or dual GST; in the event of dual GST, as has been recommended by SEC, whether administrative control over tax collection should be vertically split between the States and the Centre or both would have concurrent and overlapping jurisdiction; whether the collection of GST on services should be assigned to States leaving out a few major multi-destination services, such as telecom, for the Centre; whether Centre’s administrative control should be confined to large tax payer units only; whether the responsibility of collection of countervailing duty (equal to GST) on imported goods should be assigned to States; and whether credit of duty in inter-state sales should be allowed to buyers instantly or only after the duty remittance has been acknowledged by the designated bank in destination State. More significantly, however, enough attention has not been given to the developing of an electronic clearing house model for credit management, which holds the all-important key to successful implementation of GST in a federal country like India.

SEC appears to rely on banks’ efficacy to serve as the Clearing House, overlooking the experience of Central Board of Excise and Customs (CBEC) while implementing Electronic Accounting System in Excise and Service Taxes (EASIEST) and of Central Board of Direct Taxes (CBDT) while implementing On-line Tax Accounting System (OLTAS). Even after years of commissioning, several banks are still in default in entering simple challan data, off-line, in the above-said electronic Systems. In the above backdrop, it is not conceivable that banks in India will be equal to the onerous task of commissioning and administering a complex electronic accounting system like the Clearing House for credit management. Thus the implementation of GST by the appointed date of April 1, 2010, is most likely to founder if SEC persists with bank-managed clearing house system.

The single most critical challenge of GST, whether single or dual, is how to administer and account for credit flow along the supply chain up to the retail stage, particularly in respect of inter-state sales. It is pertinent to mention that in the prevailing VAT administration, tax credit is not allowed to the buyer in Destination State inasmuch as all sales out of the State are considered as export which is tax neutral. In GST regime, inter-state sales will no longer be treated as export or import and, therefore, will become taxable at all stages allowing credit of tax to each buyer-assessee in an unbroken supply chain. Dual administrative control over this supply chain is not conceivable unless there is a near perfect electronic accounting system managed by a single clearing house.

Another major weakness of the SEC model is that it provides for collection of CGST by States, without addressing the issue how credit of CGST and SGST will be regulated/adjusted when systems of accounting are at variance. Besides, it does not provide for a Risk Management System to guard against tax evasion. The experience of GST compliant countries merits a mention in this regard. On a modest estimate, the UK loses annually over 10 billion sterling pounds of VAT through Missing Trader and carousel frauds while other EU countries collectively lose about 100 billion Euros annually on same account. In Canada, since the inception of GST in 1991 till March 2003, about 600 individuals and businesses have been convicted of GST fraud. In Brazil, GST experiment has failed for same reasons. The only effective anti-fraud safeguard, as has been envisaged by the EU Commission, is real time settlement of all VATable transactions. It is also imperative that unorganized sectors, notably of iron and steel, copper and other metals, are brought within the credit chain by allowing deemed credit, inasmuch as their sales by and large remain unaccounted owing to inadmissibility of credit on market scraps. There is no evidence as yet of any such effective, all encompassing system being contemplated, let alone being put on trial run. There is, therefore, every reason to doubt whether the SEC model of GST will survive eventually.

The question is how we can address the above issues in a time bound manner. As a matter of fact, there is no dearth of talents in the country. What we need is a team of highly motivated executives with sound domain knowledge cum field experience coupled with Systems background.

It is time for the EC and the UFM to address the above pertinent issues in proper perspective instead of hastily adopting a patchy model of GST.