The Indian government has taken a significant step in its fight against tax evasion by updating the Prevention of Money Laundering Act (PMLA) to include the Goods and Services Tax Network (GSTN) among the entities obligated to share information with the Enforcement Directorate (ED) and the Financial Intelligence Unit (FIU). This move aims to strengthen the government’s ability to combat tax evasion and plug the loopholes associated with fake billing.
Inclusion of GSTN in the PMLA
With the inclusion of the GSTN as the 26th entity on the list, it will now be required to provide relevant information to the Enforcement Directorate and the Financial Intelligence Unit when investigations fall under their jurisdiction or when the agencies specifically request information for their probes. This update in the PMLA expands the scope of the act to cover GST-related offenses and enhances the power of the Enforcement Directorate in taking action against tax evasion within the GSTN framework.
The Need to Combat Tax Evasion
Tax evasion has been a persistent challenge in India, and the government has been actively implementing measures to curb this unlawful practice. The inclusion of GSTN in the PMLA is part of the government’s efforts to address tax evasion by strengthening the enforcement framework and ensuring a seamless exchange of information between relevant agencies. This move is specifically aimed at curbing tax evasion facilitated through fake billing and other illicit practices within the GSTN.
Facilitating Information Exchange
To enable effective information sharing between the Enforcement Directorate and the GSTN, the government issued a gazette notification regarding the exchange of information under the Prevention of Money Laundering Act, 2002 (PMLA). The notification, which falls under section 66(1)(iii) of the PMLA, facilitates the sharing of information or material in possession between the Enforcement Directorate and the GSTN, ensuring a coordinated effort to detect and prevent violations of GST provisions.
Understanding GSTN
The Goods and Services Tax Network (GSTN) is a non-profit organization owned by the government of India. It operates as the backbone of the GST portal, managing the entire IT system for the Goods and Services Tax. The GSTN has developed an Indirect Taxation platform that assists taxpayers in India with various compliance-related activities, including return filing, payment of tax liabilities, and other necessary procedures.
Prevention of Money Laundering Act (PMLA) in Brief
The Prevention of Money Laundering Act (PMLA) is a criminal law enacted to prevent money laundering and provide for the confiscation of property derived from, or involved in, money laundering activities. The act is applicable to various financial institutions, including banks (including the Reserve Bank of India), mutual funds, insurance companies, and their intermediaries. The Enforcement Directorate, under the Department of Revenue, is responsible for investigating money laundering offenses under the PMLA. The Financial Intelligence Unit – India (FIU-IND), also under the Department of Revenue, serves as the central national agency for receiving, processing, analyzing, and disseminating information related to suspicious financial transactions.
Objectives of the PMLA
The objectives of the Prevention of Money Laundering Act are fourfold. Firstly, it aims to prevent money laundering, which involves the conversion of illicitly obtained money into legitimate funds. Secondly, it seeks to combat and prevent the channeling of money into illegal activities and economic crimes. Thirdly, the act provides for the confiscation of property derived from or involved in money laundering activities. Lastly, it addresses matters connected and incidental to the acts of money laundering.
