Government did not try out GST system before rollout: CAG

By Moderator July 31, 2019 11:11


The Comptroller and Auditor General (CAG), in its first ever audit of the Goods and Services Tax, has said the government had failed to try out the system before its rollout, leading to inadequate compliance mechanisms, and lower tax revenues.

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  • In its first ever audit on the Good and Services Tax (GST), the Comptroller and Auditor General (CAG) has said government has not been following the rules set out regarding the transfer of revenue to the States.
    • The GST was launched on July 1, 2017, and has completed two years.
  • The report pointed out that the keystone of the tax system, the invoice matching system, had not yet been put in place even two years after the GST rollout.
  • It added that compliance in terms of the number of returns filed had been falling month after month, and that the government had not been following the rules set out regarding the transfer of revenue to the States.
    • The growth of indirect taxes of Government of India (GoI) slowed down to 5.8% in 2017-18 over 2016-17 as compared to 21.33% during 2016-17, with GoI’s revenue from goods and services taking a 10% dip
  • The complexity of the return mechanism and the technical glitches resulted in rollback of invoice-matching, rendering the system prone to ITC [Input Tax Credit] frauds
    • The CAG said the extent of the changes that have to now be undertaken, as well as the suspension of key aspects of the GST system such as the invoice matching mechanism, show that there was inadequate coordination between the Department of Revenue, the Central Board of Indirect Taxes and Customs and the GST Network, “as well as failure to try out the system adequately before roll out”.
    • Without invoice matching and auto generation of refunds, assessments, etc. on the whole, the envisaged GST tax compliance system is non-functional.
  • The report, tabled in Parliament on Tuesday, said the government had in 2017-18 transferred the Integrated GST amount in a manner that was in contravention of the rules laid out for such a transfer.
    • According to CAG, during 2017-18, Government of India resorted to devolution of IGST year-end balance to States as per Finance Commission formula, in contravention of the provisions of the Constitution of India and the IGST Act.
    • This also had the impact of distribution of funds to the States on a completely different basis instead of the ‘Place of Supply’ concept as envisaged in the IGST Act.


By Moderator July 31, 2019 11:11