The Comptroller and Auditor General (CAG) on Tuesday tabled its first audit report on goods and services tax (GST) in Parliament, based on the audits conducted during 2018-19.
CAG has made a serious observation on the revenue position under GST, saying that the revenues under GST are declining. “The growth of indirect taxes of the Government of India (GoI) slowed down to 5.80 percent in 2017-18 over 2016-17 as compared to 21.33 percent during 2016-17, with GoI’s revenue from goods and services taking a 10 percent dip,” CAG said in its report.
The CAG has also slammed the government simplification of compliance and says: “One significant area where the full potential of GST roll out has not been achieved is the roll out of the simplified tax compliance regime.”
CAG has also observed that even after two years of the GST roll out, system-validated Input Tax Credit through “invoice matching” is not in place and non-intrusive e-tax system still remains elusive.
Rather, CAG added, the complexity of return mechanism and the technical glitches resulted in roll back of invoice-matching, rendering the system prone to ITC frauds. CAG has also listed out the importance of Invoice-matching and has said that it is a critical requirement that would yield the full benefits of GST and would protect the tax revenues of both the Centre and the states.
CAG also noted that there is a clear lack of adherence to the business rules and the system designs, saying that adherence is the responsibility of department of revenue, CBIC, state tax authorities and GSTN.
On the distribution of integrated GST or IGST during 2017-18, CAG has slammed the government and has said that the devolution as per the Finance Commission formula is in contravention of the provisions of the IGST Act.
“The incomplete IGST ledgers were partly responsible for Rs 2,11,688 crore of IGST balance remaining unsettled during 2017-18.
“Incorrect settlement of IGST amounting to Rs 776 crore was noticed during the period from July 2017 to July 2018 because of duplicate entries and the algorithm picking up entries from wrong category of taxpayers,” CAG noted.
Noting the key challenges for GST, CAG has observed that the government needs to pay attention on the system errors to make the tax reform a success. “The complexity of return mechanism and the technical glitches resulted in roll back of invoice-matching, rendering the system prone to ITC frauds,” CAG says.
“Without invoice matching and auto generation of refunds, assessments etc. on the whole, the envisaged GST tax compliance system is non-functional,” CAG added.
Coming to the system, CAG has noted that it was expected that compliance would improve as the system would stabilize however all returns being filed showed a declining trend of filing.
It says that many system validations are not aligned to the provisions of the GST Act.
CAG also slammed the ministry of finance and said that the facility of payment through debit and credit cards could not be made available as the ministry did not decide on how to deal with the financial implications. “In a system with automated interface between the IT applications of the banks and GST portal, there should be no scope for errors such as invalid GSTIN leading to non-reconciliation of GST receipts,” CAG added.
CAG has called the current IT system vulnerable to fraudulent ITC claims and has expressed hope that the issues brought out in IT audit pointed towards the need for GSTN to re-examine the IT system.
CAG has also gone a step ahead and noted that there is an urgent need for expediting of refunds and government should go in for automation of refund processing with proper checks.