GST fake invoices: Govt to do away with edit option to revise output liability, says Revenue Secretary
The government intends to eliminate the current flexibility that allows buyers and sellers to revise their output liability by securing their invoices and eliminating the editing option in the upcoming financial year, stated Revenue Secretary Sanjay Malhotra. This proposal is slated for discussion in the upcoming GST Council meeting, as per his announcement.
The initiative is geared towards enhancing compliance and curbing the proliferation of fraudulent invoicing within the indirect tax framework.
“We aim to enhance compliance to better control the issue of fraudulent entities and fake invoicing. Currently, the system relies on trust, and we have observed misuse by unscrupulous individuals creating bogus companies. Therefore, we plan to strengthen our systems,” Malhotra explained in an interview with Moneycontrol.
While the data to address fake invoicing exists, its full potential is not currently utilized.
“We don’t necessarily need GST Council approval for this, but we will inform them during this quarter’s meeting. The systems are under construction, and it will take some time. Each invoice must be accepted, requiring a change in the entire system,” stated the revenue secretary.
The upcoming GST Council meeting is expected to take place later in February, according to sources.
No Editing Button
Presently, both buyers and sellers have the flexibility to rectify errors, even after claiming tax credits, due to the availability of an edit option.
“The government has provided the capability to make edits, a feature I aim to eliminate. For instance, after party A uploads an invoice upon selling to party B and pays the corresponding tax the following month, A is currently permitted to make edits if any errors are identified during the tax payment. Therefore, this editing capability will be discontinued,” he stated.
“Securing invoices and eliminating the editing option post the submission of GSTR-1 and GSTR-3B will bring about numerous benefits for the entire economic framework.”
“The proposed system modification will prevent suppliers with fraudulent intentions from tampering with invoice details after submission. This will effectively address false Input Tax Credit concerns and reduce commercial disputes among involved parties,” an expert informed Moneycontrol.
The Challanges:
Nonetheless, these changes might pose certain challenges, such as limiting flexibility for rectifying genuine errors, increasing administrative burdens, and potential system integration issues. Small businesses could encounter significant compliance obstacles, and initial inaccuracies may escalate disputes. The implementation of new technology and training costs, along with the potential for sophisticated fraud schemes exploiting the system before locking, underscores the necessity for careful consideration and mitigation strategies to balance benefits and risks.
“Suppliers submit their invoice-wise sales details in GSTR-1. If a supplier realizes there were errors in sales details in subsequent months, such as GSTIN of the recipient, the value of supply, etc., these can be amended/revised. If this capability is halted, genuine taxpayers may face challenges correcting unintentional mistakes. The only option then would be to issue a credit note against incorrect invoices,” an expert informed Moneycontrol.
Additionally, the current practice of claiming credit based on GSTR 2B might be affected, potentially impacting genuine taxpayers in the future.