The locked account that fraud cannot touch

The useful part

He pays the full amount, price plus tax, into the supplier's account, exactly as the law expects. This is the "missing trader" problem, and almost every country running a GST or VAT system has run into it at some point. Poland built a fix for it that is worth understanding, because it is one of those ideas that sounds technical but is actually very simple once you see how it works.

How it works

• Think of a GST invoice as having two parts: the price of the goods, and the tax on top.
• When a buyer pays a bill that falls under its rule, the bank does not send one lump sum to the seller.
• It splits the payment automatically, the moment the money moves: the price goes into the seller's ordinary account, free to spend on anything.
• The GST portion goes into a second, locked account that every business is required to hold.

Details worth keeping

A few months later, that supplier's firm turns out to be non-existent. Instead, it put in place what is called a "Locked Account" system. It is like Electronic Cash Ledger system that we have under GST in India.