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GST vision for New India - through CAG's eyes

AUGUST 10, 2022

By TIOL Edit Team

COMPTROLLER and Auditor General's (CAG's) latest report on The Goods and Services Tax (GST) shows persisting deficiencies in implementation. Presented to Parliament on 8th August 2022, the Report lists drawbacks and delays in improvement of GST system.

The flaws are delaying realisation of full potential of GST as harbinger of bountiful revenue and robust economic growth. This bitter truth might dampen the spirit of those celebrating five years of GST with great enthusiasm. We request them to blend jubilation with commitment to act on GST reforms roadmap suggested by CAG.

Its recommendations include: 1) Setting a firm timeline for rollout of simplified return forms; 2) Introducing system-verified flow of input tax credit (ITC), 3) implementing, at earliest, its 2019 recommendation for adopting an effective risk based standardised system of returns' scrutiny; 4) GST network (GSTN) should develop a system to review & resolve data inconsistencies; 5) strengthening the refund processing system with a dozen suggested initiatives; and 6) Allowing CAG access to reports and data marked confidential, respecting CAG's statutory powers to access information in possession of Government.

The conclusions and recommendations are aplenty in the CAG report. The GST Council (GSTC) should take a call on the Report captioned 'Union Government, Department of Revenue (Indirect Taxes - Goods and Services Tax), Report No. 5 of 2022. ' Let this be a separate agenda for the next GSTC meeting.

CAG has separately also focussed on flaws in State GST (SGST) in series of reports of State finances and revenue that governments presented to state assemblies. The Finance Ministry should compile CAG's critical findings and vital recommendations contained in Central and State audit reports every year as annual status report on GST for the citizens. Let the Status Report be dubbed as GST Vision for New India to make it appear politically correct.

Such a report should serve as a ready reckoner of unfinished agenda to turn GST into good and simple tax for taxpayers. It is only then that GST would act as self-generating catalysts of revenue buoyancy and enabler of double-digit growth of economy. This is required for timely upliftment of 50% of the country's population living below the poverty line as applied by the World Bank to India.

A common thread in CAG's reports on the Centre and States is the inadequacy and reliability of GST data. A related theme is the authorities' reluctance to share with CAG all required data. It is unfortunate that Central Board of Indirect Taxes and Customs (CBIC) has invoked confidentiality to deny information on methodology used in preparation of reports of high-risk taxpayers by Directorate General of Analytics and Risk Management (DGARM).

As put by the Report, "Non-production of data analysis methodology/parameters impedes CAG's Constitutional and statutory responsibility under section 16 of the CAG's DPC Act, 1971 to examine whether rules and procedures are designed to secure effective check on the assessment and collection of revenue."

CAG has cited the same law to State GST authorities that have denied access to vital information for varied reasons. GST is not the first case where CAG has been refused access to files while preparing reports on different sectors under Central and States domain.

Imagine the combined impact of such refusals on urgency to improve revenue collections and prevent corruption & frauds.We thus urge Prime Minister to intervene in this matter to protect constitutional sanctity of CAG and to stem trend of keeping under carpet wrongdoings by hampering comprehensive audit.

If data is inadequate and unreliable, it creates a situation akin to the legend in software coding domain - garbage in; garbage out. Put simply, GSTC cannot find best ways to prevent revenue leakages & stabilize GST as long as data is hidden under carpet and is also inadequate. Incorrect and unreliable data should send alarm bells ringing.

The Report concludes: "During analysis of pan-India data provided by GSTN, Audit noticed significant data inconsistencies between the taxable value and declared tax liability. Inconsistencies were also noticed between the CGST and SGST components of GST, and between ITC figures captured in GSTR-3B and GSTR-9 returns."

The Report continues: "Due to significant inconsistencies in the GST data, Audit could not establish the reliability of data, for the purpose of finding audit insights and trends in GST revenue, and assessing high risk areas such as tax liability and ITC mismatch at the pan-India level."

The Report has listed specific types of data inconsistencies. A case in point is significant differences between the declaration filed in the returns for rates of CGST and SGST, though both are equal.

CAG observes: "The above data inconsistencies indicate the existence of unreliable data and differential tax collections for the Union and States, in contravention of the GST Acts. Due to the lack of appropriate hard and soft controls, or lack of adequate post facto analysis at important data points, the data captured was unreliable in several cases. These inconsistencies are liable to increase the complexity and the resources needed for compliance functions that are required to be discharged by the tax administration."

It has appreciated "significant progress" in linking of GSTR-1, GSTR-2B and GSTR-3B; and restricting ITC of the recipient taxpayers to the supplies declared by suppliers. CAG has, however, pitched that - "further steps need to be taken to achieve a non-intrusive e-tax system with system-verified flow of ITC such as mandatory filing of GSTR-1 before filing of GSTR-3B and enhanced use of preventive checks in the GST Common portal."

There are many more recommendations that merit attention of citizens and all concerned. Suffice it here to say that CAG reports deserve requisite urgency and action in the national interest.