CAG flags deficiencies in functioning of GST

The recent report of the Union comptroller and auditor general (CAG) on the goods and services tax (GST) does praise its rollout as a landmark achievement. And, points at several deficiencies in its implementation. 

GST, it says, was rolled out with the objective of reducing the cascading of tax, ushering in a common market for goods and services, and bringing in a simplified, self-regulating and non-intrusive compliance regime. It appreciates that multiple central and state taxes, barring a few goods/sectors, have been unified, Input Tax Credit (ITC) is available across the entire value chain.

In two years, a multiplicity of tax rates was eliminated to a large extent. And, the objective of a  single information technology-based interface for the taxpayer also achieved to some extent.  

However, a system-validated ITC mechanism through ‘invoice matching’ is not in place. A non-intrusive e-tax system remains elusive. 

The return mechanism’s complexity and technical glitches resulted in rolling back of invoice matching, rendering the system prone to ITC fraud. Thus, on the whole, the envisaged GST tax compliance system is not functional.  Also, the system deficiencies point to a serious lack of coordination between its developers and the executives. 

Revenue analysis by the CAG shows the growth of indirect taxes slowed to 5.8 per cent in 2017-18 over 2016-17, from 21.3 per cent the earlier year. 

The Centre’s revenue on goods and services (excluding central excise on petroleum and tobacco) fell 10 per cent in FY18 as compared to the revenue from the subsumed taxes in FY17. 

It was expected that compliance would improve as the system stabilised but all returns showed a declining trend of filing from April to December 2018. 

The filing percentage of GSTR-1 returns (monthly ones on outward supplies) was throughout less in comparison to the corresponding filing of 

GSTR-3B returns (summary self-assessed ones). Introduction of GSTR-3B resulted in filing of returns with ITC claims which could not be verified and that appears to have encouraged non-filing of GSTR-1, says the report.   

It acknowledges that taxpayers, especially exporters, suffered due to GST refunds being held up on account of faulty planning of the refunds module. And, says  the inadequacies show a failure in not only system design but its testing by GST Network (the system’s IT backbone) and acceptance by the tax departments before a pan-India rollout. It censures the executives who endorsed the system as being equally accountable for the problems.

It also notes that import data is not being utilised during settlement of Integrated GST (IGST) due to non-integration of the GST system with the ICEGATE ones used by Customs. The report also deals with a number of other issues such as registration and payment modules, transfer of revenue to States, IGST settlement reports, system design deficiencies and so on. 

Overall, the report is soft on the government and hard on the GST Network, instead of the other way round. It blames the latter for not mapping the business rules correctly but says little about the government frequently changing the rules. 

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