CAG Report Highlights Revenue Losses in Income Tax and GST Compliance

The Comptroller and Auditor General (CAG) of India, in its latest report tabled in Parliament, highlighted widespread lapses in income tax assessments and GST compliance, causing a potential revenue loss of ₹18,509.8 crore.

Key Findings

1. Income Tax Errors: The CAG identified 504 audit observations resulting in a tax effect of ₹5,728.8 crore. These errors stemmed from:
   
   
   
   • Incorrect levy of interest.
   
   
   • Irregular depreciation allowances.
   
   
   • Incorrect business expenditure claims.
   
   
   • Unexplained investments or cash credits.
   
   
   • Arithmetical miscalculations in tax computation.
   The report criticized weak internal controls within the tax department, leading to irregular refunds and erroneous tax assessments.
2. GST Compensation Fund: The report flagged the government for failing to submit Goods and Services Tax (GST) compensation fund accounts for the last four years, despite statutory obligations and repeated CAG recommendations.
3. Tax Evasion in Breweries and Distilleries: The audit uncovered significant tax evasion in the distilleries and breweries sector, leading to a revenue loss of ₹12,781 crore.

Recommendations

The CAG urged the Central Board of Direct Taxes (CBDT) to:

• Strengthen mechanisms for reconciling assessment records.
• Improve internal controls to prevent errors in tax assessments and refunds.
• Expedite action on GST compensation fund audits.

Implications for Policymakers

The CAG’s observations underline the urgent need for reforms in tax administration to plug revenue leakages. The government is expected to address these lapses to ensure robust tax collection and compliance mechanisms. This report serves as a wake-up call for tax authorities to enhance accountability and streamline processes, ensuring greater transparency and revenue protection for the exchequer.