The rapid growth of digital payments has also increased the scrutiny of online merchants due to a spike in cases of tax evasion, people aware of the development told ET.
The Directorate General of Goods and Service Tax Intelligence (DGGI) is working closely with startups, payment aggregators and payment gateways to monitor if merchants are selling the right products with the right GST invoices, they said.
“Tax evasion is very common among small merchants, where they would enlist as a seller of one product which attracts GST at a lower slab, but engage in selling other products which attract higher GST… The tax authorities intend to catch such merchants,” said Wriju Ray, cofounder of Idfy, a Mumbai-based identity verification startup that helps payment aggregators deal with identity frauds.
The government is cracking down on such errant merchants and the Reserve Bank of India (RBI) wants payment aggregators to heighten their vigil on their clients.
Typically, platforms are seen to enlist a merchant as a laundry service or an ecommerce portal, but after a few months it starts offering betting services or gaming services and such, a top executive at a fraud detection platform said. The advantage is that a laundry service will attract a much lower GST compared to a betting service, the person explained.
Authorities need to keep track of such developments and monitor if the right taxes are being paid by the merchants, people cited above said.
While payment aggregators undertake a mandatory due diligence on the merchant at the time of onboarding, industry insiders said continuous monitoring is something that is still lacking in the industry.
“This (monitoring) happens mostly via official notices… The payment platform files GST based on their (merchants’) declaration. If the authorities detect any anomaly in terms of volumes and their reporting, they reach out to them and platforms assist in all forms possible,” a top executive at a major payment firm said.
The RBI, in its draft guidelines on payment aggregators (PAs), has spoken about ongoing monitoring of merchants by PAs.
“PA shall monitor the transaction activity of the merchant on an ongoing basis. Based on its transaction pattern, the merchant shall be migrated to a higher category of CDD (customer due diligence). Upon migration, the PA shall immediately undertake the additional due diligence of the merchant,” the regulator said.
These guidelines are still in the draft stage.
There are ways to track such merchants, industry insiders said.
“We have seen cases where merchants are taking the UPI ID or the payment ID of a logistics company, laundry services or drycleaners but they are using it to collect payments for betting, gambling or crypto transactions… These are common red flags which we track and flag to the relevant authorities,” said Varun Grover, head, brand safety, at Mfilterit, a fraud detection platform based in Gurgaon.
These platforms typically scrape through SKUs of ecommerce portals and conduct dummy transactions to detect fraudulent behaviour.
“We can detect if there are fake UPI IDs belonging to dubious individuals used by a merchant portal. In such cases, we flag the merchants as it can be a possible case of mule accounts being used to defraud customers,” Grover said.
Ray of Idfy said the firm has a scanner for the website of ecommerce portals and also a scanner to read images of shop fronts. “We use artificial intelligence to track shop fronts to ensure that they are selling the right products that they have disclosed to their banks. We also scan ecommerce portals to ensure their inventory matches with what they have disclosed to the payment aggregator,” he said.
