Is the absence of GST e-way bill a route for unorganised players to evade taxes?

Keshav Bhajanka, Executive Director of Century Ply, expected the introduction of GST to help him grab market share from unorganised players. Three months into the new tax regime, Bhajanka’s expectations are unfulfilled.

“The absence of e-way bill has benefited the unorganised sector as they can still resort to cash deals and evade taxes in inter-State transactions,” he said. The net result is Bhajanka’s products continue to be 20-30 per cent costlier than offerings from unorganised players.

Amritanshu Khaitan, MD of Eveready Industries, confirms that the expected market shift from unorganised to organised players is yet to happen.

Way bill or transit pass was the primary document to check tax evasion on the VAT regime that offered scope for tax arbitrage. GST removed the scope for inter-State tax arbitrage. Way bills are now expected to act as a secondary check to ensure tax compliance.

The government initially decided to roll out the electronic way bills that would have GST particulars by October 2017. The roll out has now been postponed to April 1, 2018. The result has been catastrophic.

According to SP Singh, Coordinator of the Delhi-based Indian Foundation of Transport Research and Training (IFTRT), there are now two clear slabs for truck rentals. Goods with clear GST details are charged ₹400 a quintal, the rest ₹700-800 a quintal.

“GST has become a source of easy money for truckers. Instead of making four trips a month, they can rake in the moolah in three trips,” he said.

According to IFTRT, previously, 40-50 per cent of the goods moved in the trunk routes avoided taxes; the ratio might have gone up to 60 per cent. As most of the goods are put in the 18-28 per cent tax bracket, the incentive for evasion is high.

Bhupendra Vyas, COO of Kajaria Ceramics, agrees that the higher tax incidence in GST is making tax evasion lucrative for the unorganised players. “The price gap between the organised and the unorganised sector produce is increasing,” he said.

However, high GST rates may not be the only cause for evasion. A tea producer from Upper Assam confirms that trade is resorting to under-invoicing and part-cash deals to reduces tax incidence in inter-State private sales. Manufactured tea attracts only five per cent GST.

According to him, this is partly to help smaller consumers who are not GST-registered. The prospect of such evasion is limited to approximately 40 per cent of the 1,260 million kg production, which is neither sold in auction nor scheduled for direct exports or packaging.

A source in a top paint and paper product manufacturer, however, said GST has benefited the industry. According to him, paper mills have stopped selling products to customers who are not GST-registered. Wholesalers are also reluctant to sell on cash.

Together, the cost of notebooks and other paper products of unorganised players have gone up, reducing the price advantage over branded products from as high as 30 per cent to 15 per cent.

Another top paint maker confirmed that the market share of organised players is improving. He, however, felt the evasion by unorganised players is rampant in intra-State sales. “Unorganised players find a way to evade taxes. We didn’t expect them to change overnight,” he said.