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GST technical glitches behind input tax credit frauds: CAG report

GST technical glitches behind input tax credit frauds: CAG report

The Comptroller and Auditor General (CAG) of India has found that the goods and services tax (GST) system is prone to input tax credit (ITC) frauds due to complexity in the compliance system.

“The originally envisaged system-validated ITC through ‘invoice matching’ had not been implemented. The complexity of return mechanism and technical glitches had resulted in roll-back of key GST returns, rendering the system prone to ITC frauds,” CAG said in its report submitted in Parliament on Wednesday.

The GST returns system is still a work in progress despite more than three years of roll-out, it said. “In the absence of a stable and simplified return mechanism, one of the main objectives of GST rollout — simplified tax compliance system — is yet to be achieved,” the report said.

CAG recommended fixing a definite time frame for rollout simplified returns forms as frequent deferments are resulting in a delay in its stabilisation and continued uncertainty in the GST ecosystem. During October 2018 to March 2020, CAG examined records relating to 4,736 of 23,106 refunds in 33 Central GST (CGST) commissionerates. It noticed non-adherence to extant provisions in processing refunds in 280 claims (6 per cent) involving an amount of Rs 16.16 crore.

“We observed instances of irregular grant of refund due to non-consideration of minimum balance in electronic credit ledger, irregular sanction of refund of input tax credit availed of on capital goods, etc,” the report said.

GST shortfall

The CGST revenue was short of the Budget Estimates and the Revised Estimates during 2018-19 and 2019-20. The shortfall vis-à-vis Budget Estimates was 22 per cent and 10 per cent for the years, respectively. Also, CGST revenue grew 2.97 per cent in FY20 over FY19. CGST revenue as a percentage of GDP, however, declined from 3.08 per cent in FY19 to 2.95 per in FY20.

The share of GST remained constant at 62 per cent of the direct tax collections during the last two years (FY19 and FY20).

To a query over this, the finance ministry said on the recommendations of the GST Council, rate rationalisations have been implemented from time to time by the government and, therefore, the actual indirect tax collections may vary with regard to the target set for a financial year.

It should be noted that in December 2015, the report on the revenue neutral rate and structure of rates for GST recommended the range of 15-15.5 per cent as the revenue neutral rate. However, the effective weighted average GST rate as of July 2019 was 11.6 per cent.

In addition, the GST Council revised the threshold turnover limits upwards for registration of taxpayers and the composition levy scheme, which affected GST collections, the ministry said.

Source: Business-Standard

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GST: Glitches in GSTR2 filing process a concern for cash flows

GST: Glitches in GSTR2 filing process a concern for cash flows

Filing goods and services tax (GST) returns has not been a smooth process.

Despite extending the deadline, the turnout of tax filers has been lower than anticipated, mainly due to technical glitches faced in the GST Network (GSTN).

Ad hoc changes in GST rates on certain items and rules after implementation is another factor.

The 31 October deadline for filing GSTR2 for July is almost here. In this return, businesses are required to upload details of their purchase transactions in the GST Network (GSTN).

The deadline for filing GSTR1 that contains details of sales transactions was 10 October.

GSTR2 is a crucial link in the GST returns filing chain, from the perspective of input tax credit.

Businesses will be able to claim timely credit depending on the accuracy and completeness of data entered in GSTR2, which will be reconciled with that of one’s vendor.

Why this is very important is that the refunds put funds back in the hands of the taxpayer, who can then use it to fund their working capital requirements.

Once this cycle is established, it will instil confidence in the tax system.

While the experience so far with GSTR2 filing has been better than GSTR1, a slew of software issues with GSTN still persist, tax experts said.

Also Read: Indirect taxes collection could fall short of target due to GST

For instance, there are many cases where vendors have confirmed reporting invoices in GSTR1, but these are not reflected in the auto-populated GSTR2, Krishan Arora, partner at Grant Thornton India, said.

He fears blockage of funds for companies whose vendors may not have been able to file GSTR1.

In case of a typographical error, no modification can be made in the invoice number or the invoice date uploaded by the supplier in GSTN. The only option is to reject the invoice and add the correct invoice details as “missing invoice”. This, as per tax experts, is quite time-consuming as the data can be voluminous.

There are many such other modifications/rectifications which have to be done manually, making the process tedious.

Also, if a supplier has missed uploading returns, then the buyer will have to make modifications in the GSTR2 form on his behalf.

Another option for the buyer is to keep these invoices in the “pending” state. There is no penalty for keeping an invoice pending, but would result in a delayed tax refund.

“What will be an assessee’s final tax liability depends on GSTR2 filing. It should be noted that GSTR-2A form does not have details of imports made or reverse charge paid on behalf of an unregistered dealer; so these details will have to be included separately,” Archit Gupta, founder and chief executive officer (CEO) of ClearTax added.

With these compliance challenges in GSTR2 filing, some tax experts do not foresee a stabilization of cash flow for businesses anytime soon.

It should be noted that the first cycle i.e., for July of filing comprehensive returns (GSTR1, GSTR2 and GSTR3) ends on 10 November. And here, we are talking about refunds for tax payments made in July only.

For GST to gain better acceptance, more flexibility is required when it comes to refunds.

After all, GST was promoted as a reform that will reduce the effect of cascading taxes, by taxing only the value addition.

“Since the overall concept of invoice matching on a monthly basis is new to all businesses and requires considerable efforts, it would be appreciated if the tax authorities take a sympathetic view to errors and omissions during the first six months,” M.S. Mani, partner-GST, Deloitte India, said.

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Source :  Livemint