Fake GST Registration May Affect Small e-commerce Businesses

Starting from May 16th, both central and state indirect tax authorities have initiated a two-month campaign aimed at identifying and removing entities that obtain GST registrations through fraudulent means.

Cracking Down On Fake GST Registration May Affect Small e-commerce Businesses.

Many small businesses that utilize e-commerce platforms to sell their products are concerned about a new campaign targeting fraudulent Goods and Services Tax (GST) registrations. These businesses are particularly worried because a significant number of them operate from co-working spaces or shared warehouses, which could present challenges during the verification process.

Starting from May 16th, both central and state indirect tax authorities have initiated a two-month campaign aimed at identifying and removing entities that obtain GST registrations through fraudulent means. 

These entities engage in practices such as generating counterfeit invoices and fraudulently transferring tax credits to other entities, even though no actual sales have taken place. The primary objective of this campaign is to eradicate the misuse of input tax credits, which tax authorities attribute to revenue losses.

According to Kumar, a significant number of small e-commerce entrepreneurs are currently running their businesses from home or co-working spaces, where multiple businesses share the same addresses. As a result, these entrepreneurs may not have their physical documents readily available to present to visiting officials.

He mentioned that numerous small and micro businesses that sell products on online platforms could unknowingly become entangled in the crackdown on fraudulent GST registrations, putting their own GST registrations at risk. He further stated that canceling GST registrations is not an effective solution to address the problem of counterfeit invoicing.

Additionally, Kumar highlighted that numerous small businesses lack the financial means to hire professionals or implement technological solutions to streamline compliance obligations. Despite reaching out via email to the finance ministry for comments on the matter, no response was received by the time of publishing. 

On May 18th, the Federation of All India Vyapar Mandal, a national organization representing traders and retailers, addressed a letter to Finance Minister Nirmala Sitharaman, requesting guidance to field officers to exercise restraint and avoid excessive measures during the campaign.

In the letter, Jayendra Tanna, the national president of the Federation of All India Vyapar Mandal, made an appeal to the minister, urging her to issue a "strong advisory" to monitor and control officers who are exceeding their authority and acting inappropriately. 

Mint has obtained a copy of the letter. The government initiated the crackdown on fraudulent GST registrations because the indirect tax system has robust technology implementation and data collection capabilities, enabling authorities to compare and analyze data gathered from different stages of the supply chain. This analysis helps identify areas where revenue collection can be enhanced.

The implementation of a more efficient GST system has led to a positive trend in revenue collection. In the month of April, both the central and state governments achieved a remarkable milestone by collectively collecting a record-breaking amount of ₹1.87 trillion.

 

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