The shift to the goods and services tax (GST) regime marked a significant step towards the creation of a common national market. But the transition to this new indirect tax regime has been marred by implementation glitches. The compliance burden has not significantly eased, nor have revenue collections met expectations. These and many more issues have been dealt with in great detail by the Comptroller and Auditor General of India (CAG) in its audit report on indirect taxes. This careful report warrants a comprehensive review of the country’s new indirect tax regime.
The audit report affirms the shortfall in government revenues post the shift to GST. It estimates that the Centre’s revenues from goods and services (excluding central excise on petroleum and tobacco) fell by 10 per cent in 2017-18, as compared to the revenue of taxes subsumed under GST in 2016-17. It was hoped that over time, as the system stabilises, compliance levels would rise. But, as the audit finds out, there has been no improvement in filing of GSTR-3B returns. This needs further investigation. The avoidable physical interface with tax officials continues, as invoice matching — which is essentially matching sales and purchases of buyers and sellers — is still not operational, suggesting that the hope of an IT-based interface remains a distant dream. This has also left the system prone to input tax credit (ITC) frauds. The report has also flagged issues with regard to settlement of claims. It notes that the manner in which the government devolved Rs 67,998 crore under integrated GST to states was “against the provisions of Constitution of India.” It has highlighted the issues of transitional credit (the carry forward of credit from the old tax regime to GST) which could have impacted central GST collections. But the issues don’t end here. The IT audit of the goods and services tax network (GSTN) also points towards several shortcomings, not only in the GST registration but also in the payment module. Inexplicably, even the CAG’s access to data, during its audit, was curtailed.
Part of the problem can be traced to the lack of co-ordination between stakeholders. There was also a failure to test the systems before rolling them out. While these system-related issues need to be addressed quickly, tinkering at the margins is unlikely to address the deeper, structural issues raised by the audit report. As the report points out, there are “serious systemic deficiencies that need to be addressed”.