Why in news?
Inverted duty structure discourages, The department of revenue has identified as many as 931 cases of fraudulent GST refund claims
- Input tax credit(ITC) frauds are most common way to evade GST
- Shell companies and fly by nights entities are being used for fake ITC
Inverted Duty Structure Discourages
- IDS, refers to taxation of inputs at higher rates than finished products that results in build-up of credits and cascading costs.
- When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.
- Several industries depend on imported raw materials and components.
- High tax on the raw materials compels them to raise price. On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage.
- Thus, manufactured goods by the domestic industry become uncompetitive against imported finished goods.
- The disadvantage of the inverted duty structure increases with the increased use of imported raw materials.
- An IDS, discourages domestic value addition.