With nearly 10 million taxpayers registering themselves on the goods and services tax (GST) network, or GSTN, the information technology backbone of the new indirect tax regime is initiating the process of mining data to detect tax evasion and analyse taxpayer behaviour.
GSTN will soon float a request for proposal (RFP) from data analytics companies to analyse data after meeting central and state government officials and understanding their requirements.
To be sure, GSTN will start data analytics when it has sufficient data spanning a year.
GST was rolled out in July this year and the tax returns started coming in August.
“We are in the process of drafting an RFP because we want the tools and manpower for data analytics. We should be able to slice and dice the data whichever way we want,” said Prakash Kumar, chief executive officer of GSTN.
“Once the HSN code starts coming in for a few months, we will know which item is going where,” Kumar said, adding that the data can help tax authorities study region-wise patterns as well as user behaviour.
Along with registration, return and payment processes, business intelligence analytics is also part of the GSTN’s mandate.
The data analytics providers will build an interface between the data and the tax authorities to help the latter detect tax evasion.
R. Muralidharan, senior director at Deloitte in India said the entire sales and purchase data will be available with GSTN.
“The data can be used in many ways. Sales, purchases and margins could be compared to industry averages. Further, eventually, this data could be linked to the direct tax database to see if the profitability and subsequent taxes paid are in line with the turnover,” Muralidharan said.
GST is a destination-based tax that aims to remove barriers across states and integrate the country into a common market. The technology backbone of this tax requires all suppliers in the credit chain to upload their invoices onto GSTN for claiming input tax credit. This means that all suppliers are forced to document their sales and raise invoices. The government expects that the rollout of this tax will increase the taxpayer base, reduce the size of the informal economy and check tax evasion.
GSTN has already used some of the initial data trends to alert states about the tax paying pattern of some taxpayers; for instance, if a taxpayer is using input tax creditor or cash to pay the tax due. Input tax credit is the tax paid at every sale in the supply chain that can be claimed as credit. Some states like Karnataka, Maharashtra and Rajasthan are also matching the data with their earlier value-added tax database to understand the new taxpayer base.
Of the nearly 10 million tax payers registered in the GST regime, around 7 million are old tax payers and 3 million are new.