In a significant move to curb potential tax evasion, the Comptroller and Auditor General (CAG) has recommended that the Finance Ministry implement stricter monitoring measures for high-risk taxpayers under the Goods and Services Tax (GST) Composition Scheme. This call to action follows an in-depth audit of 8.66 lakh composition taxpayers under central jurisdiction, spanning the fiscal years from 2019-20 to 2021-22.
The CAG's analysis revealed a substantial number of GST taxpayers who are at high risk of exceeding the turnover threshold established for the Composition Levy Scheme (CLS). This threshold is set at Rs 1.5 crore for most states, with a reduced limit of Rs 75 lakh for special category states. The audit flagged concerns that several taxpayers may be under-declaring their 'value of outward supply' to remain eligible for the scheme, potentially violating the conditions outlined in the GST Act and Rules.
The CAG's findings were drawn from GST returns, specifically GSTR-4A and GSTR-7, and corroborated with data from third-party sources such as income tax returns and the 'Vahan' vehicle registration database. The audit noted two primary risk areas: under-reporting of sales to stay within the CLS threshold and failure to meet the eligibility criteria for the scheme.
Alarmingly, the audit identified taxpayers who continue to benefit from the CLS despite failing to meet the eligibility requirements. Moreover, a significant number of these taxpayers were found to be neglecting their statutory obligations, including filing returns and paying taxes under the reverse charge mechanism.
To address these issues, the CAG has recommended that the Finance Ministry adopt a risk-based approach to periodically identify high-risk taxpayers in the CLS. This approach would involve cross-verifying the declared value of outward supplies against data from external sources to prevent misuse of the scheme by ineligible taxpayers.
The official auditor also urged the Ministry to develop a system for systematically identifying and excluding ineligible taxpayers from the CLS. Such measures are seen as crucial for maintaining the integrity of the scheme and ensuring that its benefits are not exploited by those who do not qualify.
This report, recently tabled in Parliament, highlights the need for more robust oversight of the GST Composition Scheme to safeguard government revenue and uphold fair tax practices. The Finance Ministry is now under pressure to act on these recommendations to prevent potential revenue losses and misuse of the tax benefits intended for small businesses.
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