CAG’s Address at Inaugural Function of National Seminar on Goods and Services Tax: transition Issues
Finance Minister Shri Pranab Mukherjee today inaugurated a two-day National Seminar on ‘Goods and Services Tax : Transition Issues’, organised by the Comptroller & Auditor General of India (CAG) to discuss the findings of the CAG on the preparedness for transition from sales tax to value added tax, the rationale for the tax reforms, IT related issues to GST as well as legal and operational issues relating to tax reforms.
Text of speech of the CAG, Shri Vinod Rai at the Inaugural function of the National Seminar on ‘Goods and Services Tax: Transition issues’, is as follows:
“This seminar is being hosted as part of the celebrations associated with completion of 150 years of the institution of the Comptroller and Auditor General of India. The Hon’ble Finance Minister would recall that recently in his speech delivered on the occasion of the inaugural ceremony of the 150th anniversary celebrations he had mentioned that the C&AG's study report on the issues faced in the implementation of VAT in different States was of considerable interest and that he would welcome the audit inputs in regard to GST at the appropriate time.
GST is an integrated scheme of taxation that does not discriminate between goods and services and is a part of the proposed tax reforms that centre on evolving an efficient and harmonized consumption tax system in the country. In the Union Budget for the year 2006-2007, the Finance Minister proposed that India should move towards a national level Goods and Services Tax that should be shared between the Centre and the States. The Union Government is now actively engaged with the Empowered Committee of State Finance Ministers to finalise the structure of the GST as well as the modalities of its expeditious implementation.
The genesis of the idea of holding this seminar arose from the reactions to the Study Report we produced in June 2010 on “Implementation of Value Added Tax in India –Lessons for Transition to Goods and Services Tax.” That Report synthesized the findings of the performance audits conducted by 23 of our field offices where we reviewed the transitional process from the sales tax regime to the VAT system by evaluating whether the States had planned well for the transition, the administrative machinery had been appropriately geared to suit the requirements of the new tax regime, the legislative provisions were adequate and properly enforced, adequate and effective internal controls were in place and the new systems had stabilized and were functioning effectively after four-five years of introduction of VAT. The Report underlined the fact that certain fundamental issues which were required to be tackled prior to implementation of VAT were not addressed and their consequent fallout in the post-VAT scenario was discussed.
We are of the opinion that the findings of that Report could serve as indicators towards some of the important areas which need to be examined and tackled before we transit to the GST regime. We have made certain recommendations in that Report which among others underline the need to draw up a road map for resolution of issues from the legacy system before switching to GST, place automation high on priority, make e-filing mandatory, integrate all units including check gates within the states and inter-state, refine the risk-based selection of dealers for tax audit to generate a sample that is both viable and effective in detection of evasion and have a comprehensive mechanism for cross verification of the returns of the dealers with other records, including those of other departments.
As professional auditors we are committed to continuously upgrade our skills. With reforms being introduced in the economy, our institution also has to keep abreast of the changes in order to fine-tune both our audit approach and the methodology of audit. We have moved on from being a fault-finding machinery to one where we adopt a holistic approach focusing on the macro picture, contributing to the process of governance through timely interventions.
The aim of audit is not to criticize but to place the Executive in a comfort zone by acting as an aid to the decision making process. As revenue auditors, we look at systems and processes and point out lacunae in laws and rules which lead to leakage of revenue and suggest ways to plug this. The findings in our Reports have led to several amendments in various legislative enactments, both at the Centre and in the States. To cite an example, on the Direct Taxes side, the Government introduced six legislative amendments in the last five years to correct the anomalies pointed out by us, the latest being the amendment made in the Finance Act 2009 based on our Report on ‘Assessments relating to infrastructure development (Deductions under section 80‐IA of the Income Tax Act)’. Deductions under section 80‐IA of the Act are based on profits, and the lack of clear directions for determination of reasonable profits, fostered a tendency among eligible assessees to artificially inflate profits. The Act was amended in July 2009 to cap the eligible profits within statutory or regulatory restrictions in the sector. Changes have also been made in the Central Excise Act, Service Tax Act and in State laws and rules on the basis of findings highlighted in our Audit Reports.
I mention this in order to underline the fact that in order to be effective auditors, it is essential that we thoroughly familiarize ourselves with the system we are required to audit. It is with this in mind, that we are holding this seminar. We are aware that GST is at a very nascent stage and is yet to find a shape and form. A clear picture on the design of GST and the infrastructure necessary for its successful implementation has not yet emerged. However, once GST is in place it will have concrete implications for the economy and it is therefore important to be aware of them. It is imperative for us as professional auditors to be a part of the evolving process in order to be effective. Through this seminar, we intend to provide a platform where individuals who are actively associated with the process of determining the final shape of GST, engage in dialogue on critical parameters, share their views, experiences as well as concerns, reflect on the problems and throw light on what could be the possible way forward. We have amongst us distinguished representatives of the Union and State governments, scholars, academicians, chartered accountants and persons from trade and industry associations. We look forward to hearing their views on a gamut of issues ranging from the need for a constitutional amendment for introduction of GST, development of IT infrastructure, the possible architecture of rates, exemptions and thresholds and the administrative preparedness that would be required to effectively implement the new tax regime. Their rich experience would help those of us in the auditing profession reflect on what is till now uncharted territory.
In conclusion, I am privileged to welcome all our distinguished guests on this occasion. We look forward to intense discussions and debates over these two days.”