CAG report reveals huge tax evasion in Kerala

Thiruvananthapuram: Economic Review 2015 had confirmed the crisis. Now, the CAG Report on Revenue Sector, tabled in the Assembly on Wednesday, has come out with shocking details of what has gone wrong with the state’s revenues. Random assessments conducted by the Comptroller and Auditor General in 443 units in the state during 2014-15 has revealed an under-collection of Rs 5,141 crore.

The principal accountant-general (economic and revenue sector audit), Mr Amar Patnaik, said that the incidence of evasion seen during the audit period was “the highest ever”. The short collection of VAT alone (after assessing only 169 offices of the Commercial Sales Tax Department) has been pegged at Rs 1,771.71 crore. The largest number of evasion was found under the deputy commissioner, Kochi. The report has also recommended that action be taken against officials who have been found wanting.

Tax evasion takes various forms. One, the State’s laxity in pulling in more traders within the tax net. The report notes that though Economic Census 2013 reported that there were 13.41 lakh establishments involved in economic activities other than agricultural, service and defence, only 2.20 lakh dealers were registered under VAT. Online traders, too, have been left out.

Two, short collection as a result of wrong self-assessment by dealer. Assessing authorities fail to detect irregularities like purchase suppression, sales suppression, and misclassification of commodities. Three, application of incorrect rate of tax. For instance, spacecraft parts are charged at 4 percent when 12.5 percent should have been imposed.

Four, part of turnover escaping assessment. It was found that contractors while filing annual returns concealed the actual turnover. Five, misclassification. For instance, the UPS sold by Crompton Greaves was assessed at 5 percent by classifying it as computer systems instead of the actual 13.5 percent. Six, incorrect exemption. HCL Infosystems got an exemption of Rs 4.95 crore towards annual maintenance contract when it was eligible for only Rs 2.30 crore.