CAG points out loopholes in GST and makes recommendations

The Comptroller and Auditor General (CAG) of India recently audited the GST system for the financial year ending 31st March 2021. The CAG identified some critical issues in the present GST system.

The issues range from failure to curb fraud and handling refunds to system loopholes. The department officers had granted GST refunds in many cases without proper verification. There is also no process to monitor post-refund compliance, such as the realisation of export proceeds. In some cases, refunds were granted twice. It also pointed out that there are discrepancies noticed between the declared tax liability and its taxable value.

The supreme audit authority has also opined that frequent changes in the GST system can leave it unsettled for taxpayers and businesses to cope. The CAG has shared potential solutions for addressing these issues.

It recommended that business rules be corrected sooner, systems and technology be implemented consistently with law, and building better data analytics of the GST ecosystem. Further, it expects that the GST Network (GSTN) data differences can be addressed effectively by establishing a robust review and follow-up system. All these would combine to give an excellent boost to the GST revenues.

The CAG also observed another major issue in migrating the pre-GST tax credit into the current regime. The transitional tax credit is a one-time inflow of input tax credit from the previous tax regime into the GST regime. The migrating taxpayers could avail it.

The authority audited in detail around 8519 out of 50,000 high-value cases bearing greater risk at a PAN-India level. The sample size addressed a transitional credit amounting to Rs.82,755 crore, which is 62% of the total transitional CGST credit. It noticed pending verifications and advised the CBIC to expedite the process by taking up high-risk accounts at the earliest.

The GSTN and CBIC are taking up many initiatives in recent times to curb tax evasion. E-Invoicing phase 5 for businesses with a turnover of more than Rs.10 crore will be implemented from 1st October 2022. The timelines are given well in advance for taxpayers to prepare for the change. The GST systems seem to be getting more efficient with the passing months. GSTR-9 filing facility for FY 2021-22 is already made live on the GST portal giving enough time for taxpayers to begin their annual reconciliations and reporting.

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