The countrys supreme audit body has questioned the preparedness of states to roll out the goods and services tax (GST), amid hectic parleys to build a consensus on the implementation of this crucial indirect tax reform from the next fiscal year.

There are several deficiencies in the value-added tax (VAT) regime, says the comptroller and auditor general of India (CAG) in a extensive study based on audits of state tax administrations. We found that automation was in a nascent stage in all states except Kerala, the CAG says in a report, Implementation of VAT in Indialessons for transition to GST. A smooth VAT is considered an absolute must for a successful GST regime.It was known that VAT will eventually lead to GST and a common software developed on a common platform across states would be a precursor for this shift, says the study.

Varying levels of automation and computerisation aside, the lack of a common platform is another big problem, given the paucity of time. Jharkhand and Bihar, for instance, use web-based VAT application software to register dealers, process and monitor returns, but the software is yet to provide and integrated platform for IT-enabled processing of returns. Other states have developed their own information systems, which are yet to stabilise.

Disparate efforts in automation led to multiplicity of efforts and resource allocation, but more importantly the outputs generated from these silos have not evolved a common platform for integration, the study says. Gujarat chief minister Narendra Modi also highlighted the lack of preparedness and cautioned against rushing into rolling out the new indirect tax regime.BJPs stand is very clear. The GST dream will not get fulfilled till the time you link all the taxpayers in the country with an IT network, said Mr Modi.

Tamil Nadu chief minister M Karunanidhi also raised concerns in a letter to Union finance minister Pranab Mukherjee. The industry has also cautioned against a hasty rollout.

It may be in fitness of things to postpone the rollout by a few months to have a flawless GST rather than to have a partial one in haste, said industry chamber FICCI in a recent paper on GST. The importance of systems integration comes across clearly in the CAG study, which has revealed tax evasion amounting to Rs 873 crore from just 2,614 returns in 15 states.

The study also found that 13 manufacturers did not reduce the maximum retail price of goods despite sharp decline in the rate of tax. As a
consequence, the benefit of Rs 40 crore was illegally retained by the manufacturers and dealers in the VAT chain instead of passing on the gains to consumers.

Pratik Jain, partner at consulting firm KPMG, agrees that GST requires a complete overhaul of the state tax administrations. It would also be the first time that they would be taxing services and imports. Preparedness is required not just in IT but also in terms of training, he said.

The Centre is aware of the issue and has formed a Tax Advisory Group for Unique Projects (TAGUP) headed by Nandan Nilekani, chairman, Unique Identification Authority of India, to prepare a detailed road map and strategy for requisite IT infrastructure for GST.

A separate empowered group, also chaired by Mr Nilekani with joint representation from the Centre and the states, has been set up to take decisions about necessary IT parameters. The GST is a single levy in the nature of a consumption tax that will replace excise duty, service tax, VAT and local taxes.

This will help create a seamless pan-India market, with both manufacturers and service providers having the right to offset state taxes paid on inputs sourced from anywhere. The CAG study could provide with the much-needed dos and donts as the government prepares the road map for the big-bang game-changing reform in indirect taxes.