Commenting on the GST implementation, the report said one significant area where the full potential of GST has not been achieved is the roll-out of the simplified tax compliance regime.
"Even after two years of GST roll-out, system validated input tax credit through 'invoice matching' is not in place and non-intrusive e-tax system still remains elusive," it said.
On revenue collection, the report said the growth of indirect taxes of the central government slowed down to 5.80 per cent in 2017-18 over 2016-17 as compared to 21.33 per cent during 2016-17, with government's revenue from goods and services taking a 10 per cent dip.
It also noted that there was a short transfer of Rs 6,466 crore of GST Compensation Cess to the Public Account during 2017-18.
The CAG further said that system of payment and settlement of tax that was envisaged for GST was based on one hundred per cent invoice-matching and availment of input tax credit, as well as settlement of IGST on the basis of invoice-matching.
"Neither is possible as of now, as an invoice-matching system has not kicked-in," it said.
Invoice-matching is the critical requirement that would yield the full benefits of this major tax reform.
It would protect the tax revenues of both the Centre and the States, it would lead to proper settlement of IGST and would minimise, if not eliminate, the tax official-assessee interface, the report said.
In another report on direct taxes, which tabled in Parliament, the CAG said the IT system for direct taxes needs to be designed in such a way that it should ensure zero or minimal physical interface between the assessee and the tax officers.
"Government may consider the IT system for direct taxes being placed at arms length from CBDT, with an independent governmental body or organisation," it said.
The report also said the Central Board of Direct Taxes should examine whether the instances of "mistakes" noticed are errors of omission or commission and if these are errors of commission, then ITD should ensure necessary action as per law.