GST: Has CAG report taken all facts into account?

The Comptroller and Auditor General (CAG)’s report on Goods and Services Tax (GST) has raised many concerns. But it seems that the government auditor has not taken cognisance of many facts, according to tax experts.

Talking about rates, the CAG had observed that in GST, goods and services of same nature have been subjected to multiple tax rates. For example, different rates have been levied on hotels and lodges for different room rents.

There is no GST for rent up to ₹1,000 per day, while it is 12 per cent for rent between ₹1,000 and ₹2,499. The rate is 18 per cent for rents of ₹2,500 to ₹7,499 room rents, and beyond that 28 per cent.

However, the experts say, the auditor misses out the fact that this was considered by the GST Council and it had not found any justification in levying the same rate for a room in a small lodge and that in a five star hotel.

The CAG, in its report, had observed that even after two years of its rollout, system validated Input Tax Credit (OTC) through ‘invoice matching’ is not in place and a non-intrusive e-tax system still remains elusive.

Invoice matching

Here, say the experts, one needs to consider the view of the GST Council.

While invoice matching is at the core of GST design, the Council acknowledged that this will be an onerous requirement for the taxpayer to comply in the initial months.

Before GST was introduced, none of the central taxes had invoice level matching. Some States did implement this practice in VAT, but even they were rudimentary where invoice level data was used for detecting possible cases of fake ITC.

Compared to that, the system envisaged in GST is that credit would be available only if the invoice is uploaded in the system.

As of now, there are GSTR 1 and GSTR 3B which do provide invoice matching and the new system, being implemented in phases, will help in more and more invoice matching. The CAG had also observed that post implementation of GST, the revenue on goods and services (excluding central excise on petroleum and tobacco) had declined 15 per cent in 2017-18 compared to the revenue of subsumed taxes in 2016-17.

Here, according to the experts, two important points need to be considered — rate reductions that happened after the introduction of GST, and when comparing revenues, the compensation cess cannot be ignored.

Rate cuts and revenues

Rate reductions were done over a period starting November 2017 and had immediate revenue impact.

Comparing 2016-17 revenues with the 2017-18 (post GST) mop-up without taking into account the implication of the cess would be misleading, they said.

While it can be argued that the cess is only for the purpose of paying compensations, it cannot be ignored when a comparison to pre-GST periods has to be made.

Nevertheless, the compensation cess has been carved out of the total indirect tax rates applicable before GST.

There is no denying that an increase in returns filings should be one of the objectives of the tax administration. Still here, one needs to see the number of tax payers before GST and after that (nearly 60 lakh versus 1.18 crore), they said.

So, in percentage terms, the returns filed may have shown varying trends over different periods, but the absolute number has seen significant growth. Over 75 lakh assesses have filed returns for June by July 31 and this number is expected to go up.

The CAG report has to be taken up by the Public Accounts Committee (PAC), which will consider the government’s responses on various observations that have been made.

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