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‘GST System Vulnerable to Fraud, Needs a Relook’.

Published: August 1, 2019

Finance ministry must undertake a review of settlements under GST given the inaccuracies flagged by audit: CAG

The national auditor has flagged the vulnerability of the goods and services tax (GST) system to fraud, citing as example a settlement under which a taxpayer claimed 79% of the total input tax credit in a month and the matter remained undetected for long. The Comptroller & Auditor General has said the indirect tax reform needs a relook. “As these have a bearing on the settlement of funds to the Centre and various states, the ministry of finance should undertake a comprehensive review of Integrated GST settlements done so far, duly considering the inaccuracies brought out by audit,” the CAG said in its first report on GST after its roll out on July 1, 2017, citing examples of fraudulent IGST claims by taxpayers.

The CAG report for 2018 said incidents of such claims going undetected by the system exposed the vulnerability of the system to fraudulent input tax credit (ITC) claims. It also highlighted issues with compliance under the new tax. “One significant area where the full potential of GST rollout has not been achieved is the roll out of the simplified tax compliance regime,” it said. The auditor pointed out that even two years after the rollout of GST, system validated input tax credit though “invoice matching” is not in place and a non- intrusive e-tax system still remains elusive.

“The complexity of return mechanism and the technical glitches resulted in roll back of invoice-matching, rendering the system prone to ITC frauds,” the CAG said, adding that on the whole, the envisaged GST tax compliance system is “nonfunctional”. “The deficiencies in the GST system also point to a serious lack of coordination between the executive and the developers,” it said, highlighting the issues in the income tax system. The issues brought out in income tax audit also pointed towards the need for GSTN to reexamine prioritisation of development of various functionalities, strengthening of their root cause analysis and testing process to ensure that critical deficiencies in application are detected and rectified before rollout to the public, it said. While acknowledging that GST is a completely new system being developed, the CAG said that in view of its magnitude and pan-India impact, it is necessary that due care is taken both in development and in testing of the system before a rollout. “The failure to map business rules correctly and the absence of key validations in the rolled out system points to inadequacies in the functioning of GSTN, “it said.

CAG Asks CBDT to Design IT System to Minimise Errors

The national auditor has asked the Central Board of Direct Taxes to put in place an IT system that ensures zero or minimal physical interface between assessees and tax officers. In its report on direct taxes for FY18, the Comptroller and Auditor General has also said that the apex direct taxes body needs to put in place a foolproof IT system and internal control mechanism to eliminate “so-called errors” in tax assessment.

“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,” the CAG said, adding that the government should consider placing the IT system for direct taxes with an independent government body, “at arm’s length” from the CBDT.

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