Analysis

GST being used to convert black money to white

Our staff has uncovered a new business model. There are several whole sellers that are offering GST bills for sale without any obligation to buy the goods in the first place. The scam utilizes a simple provision of the newly enacted bill i.e. not every business has to pay GST.

The modus operandi is simple the operators buy goods in bulk then sell it in cash for the (without tax) to smaller businesses which are outside the ambit of GST. The sales is then booked as fictitious sales to companies that would like to create expense an such individuals buy GST bills at a value of tax plus two to five percent.

The operation is simple in the sense that the operator books both his tax and income as legitimate white money while creating additional two to five percent wealth for themselves. The buyers who got the good in cash saved their taxation money adding margins to their small business, while big business can launder money into unspecified purchases by producing multiple cash bills that they have obtained by just buying the bills.

To give you an example, if one has Rs 100 of back money, they would go-to the operator and buy an invoice of Rs 105 (Rs 100 + tax of Rs 5) at INR 107 by paying Rs 7. When this invoice is received INR 5 has already been paid to govt as GST. Now the tax evader books the entire invoice as an input cost and prepares an outward rerail invoice to unknown customer at INR 98 and 5% GST. In this transaction the an income of INR 98 is booked as a loss so no income tax and 5 Rs is claimed back as input GST. In effect the back money is converted to white .

The actual seller of goods who transacted in cash makes money out of GST as his margin and the entire claim of GST providing a transparent and falls flat.There is no doubt GST has been rolled out in a hurried manner all these options are just the result of rubber meeting the road without ever meeting a test environment..

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