The government has recently issued a notification that effectively brings the Goods and Services Tax Network (GSTN) under the scope of the Prevention of Money Laundering Act, 2002 (PMLA). This development comes under Section 66 of the PMLA and aims to enhance India’s fight against money laundering by boosting efforts to combat Goods and Services Tax (GST) fraud.
Reasons for Including GSTN in PMLA
The inclusion of the GSTN within the ambit of the PMLA is primarily to beef up the battle against money laundering and reinforce the actions against GST fraud. A recent operation to identify fake GST registrations resulted in over 69,600 suspected GST identification numbers being flagged for physical verification by field tax officials. Out of these, more than 59,000 were confirmed, and 25% turned out to be non-existent.
About Goods and Services Tax Network (GSTN)
GSTN, a not-for-profit Government Company, established an Indirect Taxation platform for GST in India. This platform assists taxpayers in preparing, filing returns, making payments, and complying with indirect tax regulations. The service provides IT infrastructure and services to Central and State Governments, taxpayers, and other stakeholders. Incorporated under Section 25 of the Companies Act, 1956 (Now Section 8 of the Companies Act, 2013), GSTN has converted into a Government Company in June 2022.
Understanding the Prevention of Money Laundering Act (PMLA), 2002
The PMLA, enacted as a response to India’s global commitment (Vienna Convention) to challenge the problem of money laundering, serves as the cornerstone of India’s legal framework against Money Laundering. The act applies to all financial institutions, banks (including RBI), mutual funds, insurance companies, and their financial intermediaries.
Objectives of PMLA
The primary goals of PMLA include the seizure and confiscation of proceeds of crimes that are laundered or generated through criminal activities, establishing a fundamental legal framework for the prevention of money laundering and terrorist financing, enhancing investigation and prosecution mechanisms for money laundering offenses, and improving international cooperation against money laundering and related offenses.
Regulating Authorities under PMLA
Enforcement is provided by two key agencies under PMLA – the Directorate of Enforcement (ED), which investigates money laundering cases, and the Financial Intelligence Unit – India (FIU-IND), a unit of the Indian Government’s Department of Revenue that gathers financial intelligence on money laundering offenses.
Measures to Tackle Money Laundering
Emerging technologies and globalization have inadvertently contributed to money laundering. Measures at national and international levels are crucial to tackle this problem effectively. The rationale behind the Goods and Services Tax (Compensation to States) Act of 2017 is also an important aspect to consider in terms of economic regulation.
Impact of COVID-19 on GST Compensation Fund
The COVID-19 pandemic has significantly impacted the GST compensation fund and created new federal tensions, making the fight against money laundering in India more challenging. Subsequently, these repercussions make the inclusion of GSTN within PMLA’s ambit all the more necessary.
