A GST registered taxpayer in Srinagar buys scrap iron worth ₹20 lakh from a supplier in other part of the country. The invoice shows GST separately. He pays the full amount, price plus tax, into the supplier’s account, exactly as the law expects. A few months later, that supplier’s firm turns out to be non-existent. No tax was ever deposited by the supplier. The department is now left with two choices: chase a firm that has vanished, or recover the Input Tax Credit from a taxpayer who paid honestly and has the invoice and transaction trail to prove it.

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.

Think of a GST invoice as having two parts: the price of the goods, and the tax on top. Normally both go to the seller in one payment, and the seller is trusted to set the tax aside and hand it to the government later when he files return. Poland removed that trust requirement. Instead, it put in place what is called a “Locked Account” system. 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. The seller cannot draw cash from it, cannot move........

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