Explained: GSTN now under purview of PMLA; what does this mean for ED, others?

The Centre has notified that the Goods & Services Tax Network (GSTN) will come under the purview of the Prevention of Money Laundering Act (PMLA). This is seen to give more teeth to the Enforcement Directorate (ED), which handles PMLA cases.

While there is not much clarity right away on what the fineprint of the notification suggests, The Federal seeks to address some basic queries on the Centre’s move.

What is GSTN?

The GSTN, as the name suggests, is the information technology network that forms the backbone of the GST regime. It provides IT infrastructure and services to Central and State governments, taxpayers and other stakeholders for implementation of GST.  

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GSTN makes available standard software for enterprises and small traders to store their accounts such that straight away they can be uploaded as their monthly returns on the GSTN website. 

What is PMLA?

The Prevention of Money Laundering Act, 2002 forms the core of the legal framework put in place by India to combat money laundering. It gives the Financial Intelligence Unit (FIU) and the ED exclusive and concurrent powers to implement the provisions of the Act.

The Act aims to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering. It obliges banking companies, financial institutions, businesses and professionals to verify the identity of clients, maintain records and furnish information to the FIU and the ED as and when required.

The primary aim of the Act, when rolled out in 2005, was to rein in terror funding and drug trafficking.

What does the latest government notification say?

It says GSTN will now be covered by the PMLA Act. For this, changes have been made under Section 66 of the PMLA, which provides for disclosure of information. This means the information stored in the GST Network has to be shared with the ED and the FIU. 

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The GSTN runs its own Business Intelligence and Fraud Analytics (BIFA) tool, launched along with Infosys in 2019. The BIFA provides intelligence inputs, as well as advanced analytics to detect frauds in the administration of GST, to state and central GST authorities.  This information will now be available to the ED, too.

What, according to the notification, is the aim of the move?

The government notification says it will now be possible to take strict action against those involved in tax evasion and manipulation of documents. Crimes under GST like fake input tax credit (ITC) and fake invoices will be included in the PMLA. 

Is such sharing of information with the ED and FUI already in place?

Yes, various regulatory and enforcement agencies do share such information. The GSTN is the 25th agency to get added to the list, which is updated from time to time. The others include the Competition Commission of India (CCI), Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India (IRDAI), Serious Fraud Investigation Office (SFO), and Director General of Foreign Trade (DGFT). 

How will adding GSTN to the list help?

GSTN contains highly sensitive data at a detailed level, and this can be fully accessed by the central investigators now. This is why the inclusion of GSTN under the PMLA will likely help the ED immensely.

Will the information flow in reverse, too?

Yes, the government notification says the FIU and the ED will also share information with the GSTN in case they find that any GST assessee is involved in suspicious forex transactions.

What could be the political repercussions of the move?

The Narendra Modi government has been facing criticism for allegedly using central agencies such as the ED and the Central Bureau of Investigation to target political rivals. 

Recently, the Centre amended the PMLA to bring in all NGOs and trusts under its ambit for reporting purposes. Virtual asset service providers, including cryptocurrency exchanges, are now reporting entities under the PMLA. They need to report all suspicious transactions to the FIU. Politically Exposed Persons (PEPs) are under the PMLA ambit as well.

In this backdrop, providing the ED with more teeth, especially with less than a year to go for the next Lok Sabha election, may trigger sharp criticism from the Opposition.