‘Digital Raj’ should not replace ‘Inspector Raj’ and audit trails must not lead to ‘Raid Raj’ if Make in India is to happen

In one of the early raids on GST evasion, a senior tax officer in Andhra Pradesh slapped a Rs. 20,000 fine on a business man for the omission of Rs. 15 as GST in a bill. Is the inspector raj returning in the digital era?

Make in India, simplifying GST , GST compliance, ease of business. Digital Raj, Inspector Raj, Raid Raj

GSTN creates a very elaborate audit trail of business transactions that makes tax evasion difficult. (File)

There are two major differences between the GSTN provisions in India and that in Canada and other developed nations. The first difference is that the Indian GSTN creates a very elaborate audit trail of business transactions that makes tax evasion difficult. It also makes business very difficult. The developed nations have no issues with tax evasion and hence they have a simple return form.

The second difference is that the attitude of the Indian GST officers, the GSTN portal managers and the bureaucracy. This is the same as it was in the old days of inspector raj. They have created an unusually complex GSTN system with multiple glitches that will take months to stabilize. Many returns away from the metropolitan towns are not being filed just because the GSTN FAQs are not adequate, state GST officers are unaware of many provisions and clever CA’s are not available to guide the businessmen.

Sitting in the metros the central GSTN team has a huge attitude problem. What we do is right, what businessmen do is wrong. They do not understand or want to understand the filing difficulties say businessmen. They know that once the return dates are over they can pull up those not filing returns as per provisions of the law. So, the political leadership must step in and let the Revenue secretary and the bureaucracy know that the intent is not to unleash terror but let the system bring about a regulated transition.

Unfortunately, the raids have begun.

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A recent news report in the financial press says that over 200 senior IRS and IAS officers across big and small cities have been authorized by the Government to identify businessmen who are evading GST. They have been given discretionary powers to slap arbitrary fines “ if it’s clearly established that you willfully violated the provisions of the GST Law “ says the notice. And in one of the early raids a businessman was slapped a fine of Rs 20,000 on a sale of Rs 300 because according to the officer he ‘wilfully’ did not collect the GST on the sale.

This brings back some of the horrific memories of inspector raj unleashed by Indira Gandhi in the seventies and eighties. After a spate of nationalizations that included Banks, Oil, Coal, Steel and Cement companies Mrs Gandhi tightened the screws on the Private Sector. You could not produce more than your licensed capacity and expansion was not permitted. It was a control economy where all your economic activity was documented, monitored and controlled.

The inspector raj of the eighties caused corruption because of discretionary powers

Such was the tight rule of law that those days that consumers had to wait fifteen years for a Bajaj Scooter, ten years for a Fiat car and five years for an Ambassador car, because manufacturers could not produce one unit more than the licensed capacity. After several steel plants were nationalized, Tata Steel under the Chairmanship of JRD Tata operated at a Net Profit Margin of 1% for several years. It was presumably to show that they were not profiteering.

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It was the licenses and registers that choked the Indian manufacturing during the days of Indira Gandhi. There was the much feared ‘central excise act’ for manufacturers the ‘factories act’ for industries and the ‘shopping and establishment act’ for shops and offices and the ‘labour act’ for employees, and many others.

There was a complex web of entries that were mandated in the dreaded registers that were to be kept updated at all times in the pre-digital era. That was equivalent to creating an audit trail that the excise inspector, sales tax inspector or factory inspector could check at any time. If they found any discrepancy in compliance they could fine you as per their discretion.

That made ease of business impossible. As a matter of fact it was impossible to either do business, close business or fire anyone without appeasing the inspector. If you give the authority to an IRS or IAS officer to levy fines at his own discretion, this culture of appeasing officers with authority is bound to begin. So, are we returning to the age of the inspector raj in the digital age?