1st to 10th January 2024 - BOGUS FIRMS AND INPUT TAX CREDIT (ITC) EVASION

Question 1

What is a bogus firm?

Answer 1

A bogus firm is a fictitious business created to engage in illegal activities, often to exploit tax systems.

Question 2

Describe the scale of the bogus firm issue in the context of ITC evasion.

Answer 2

There are over 29,000 bogus firms detected, with the ITC evasion estimated at a staggering Rs. 44,015 crores. This reveals a large-scale fraud problem.

Question 3

What is Input Tax Credit (ITC)?

Answer 3

ITC allows businesses under GST to deduct tax paid on purchases (inputs) from tax owed on sales (outputs). This reduces their tax burden.

Question 4

Which Indian state has the highest concentration of bogus firms per lakh registered firms?

Answer 4

Haryana takes the lead with 81 bogus firms, followed closely by Delhi.

Question 5

How does ITC evasion by bogus firms hurt the economy?

Answer 5

It causes vast losses in government revenue.
This missing revenue hurts public services and infrastructure funding.
It creates unfair competition for honest businesses.

Question 6

Beyond direct revenue loss, what are other potential negative consequences of widespread bogus firm operations?

Answer 6

Damage to the reputation of India’s business climate.
Hindrance to potential economic growth and investment.
Erosion of trust in the tax system.

Question 7

Brainstorm 2-3 potential measures that the government could take to tackle the problem of bogus firms and ITC evasion.

Answer 7

(This is open-ended. Some possibilities include: stricter registration checks, using technology for fraud detection, cross-referencing data across agencies)

Question 8

Beyond government action, what role can businesses and consumers play in reducing ITC fraud?

Answer 8

(Open-ended. Ideas: Due diligence in choosing suppliers, reporting suspicious activity, demanding proper invoices)