CAG says GST has failed to live up to its full potential

  • CAG pointed out that matching invoice of buyers and sellers, an anti-evasion measure envisaged in the indirect tax regime, was still not in place
  • CAG said that 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

New Delhi: It has been two years since the government’s much-touted indirect tax regime--the Goods and Services Tax—was rolled out, but the technology-driven tax code has failed to curb evasion as was envisaged, said the Comptroller and Auditor General of India (CAG).

CAG pointed out that matching invoice of buyers and sellers, an anti-evasion measure envisaged in the indirect tax regime, was still not in place.

An online system validated input tax credit (ITC) through “invoice matching" was still not in place, CAG said in a report. Input tax credit is the deduction for tax already paid by businesses.

“One significant area where the full potential of GST (Goods and Services tax) has not been achieved is the roll out of the simplified tax compliance regime," the CAG said in its report on GST for fiscal 2018-19.

The return filing system that was in place after the rollout in 2017 was complex and technical glitches in the information technology (IT) backbone Goods and Services Tax Network (GSTN) led to the elimination of the invoice matching system that was seen as curbing evasion.

“The complexity of return mechanism and the technical glitches resulted in roll back of invoice-matching, rendering the system prone to ITC frauds. Thus, on the whole, the envisaged GST tax compliance system is non-functional," the report said.

CAG also said there were deficiencies in the GST system, indicating a “serious lack of coordination between the executive and the developers."

The GST Council—the highest decision making body of the indirect tax system—has, however, approved a new return filing system, which businesses were able to use on a trial-basis starting July, and which will become mandatory during the second half of 2019-20. The new return filing system was expected to plug loopholes in the return filing system and introduce invoice matching of sales and purchase, curbing evasion in the process.

“The 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.

According to CAG, invoice matching is a “critical requirement", which will yield benefits.

On the number of returns filed, CAG said while it was expected that compliance would improve as the indirect tax regime stabilizes, there was yet no improvement in the number of GSTR3B (summary return form) returns filed. While 87% taxpayers filed GST3B in April, 2018, this declined to 79% by December, indicating that compliance declined.

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