The government is likely to settle for a simple regime to administer the proposed goods and services tax that is in line with the low rates and easy procedures approach followed in the case of income tax, which has helped increase compliance.

The mandatory annual audit that gives nightmares to the industry may be replaced by a selective scrutiny in the case of large taxpayers.

However, such tax payers will have to get their accounts audited by certified chartered or cost accountants, as per the architecture of the new indirect taxes regime that is currently being discussed.

The empowered committee of state finance ministers will meet on August 4 to build a consensus on the GST structure, though there are indications that many states are opposed to the constitutional changes suggested by the Centre.

If the Centre is not able to build a consensus and move an appropriate bill in the current session of Parliament, the GST could miss its already delayed rollout date of April 1, 2011. In the new GST regime, like the random scrutiny of income tax returns, the tax department will take up a few cases for departmental audit based on a scrutiny of the audit reports, a government official said.

The selection for scrutiny could also be based on intelligence available in the electronic databases, akin to the computer-assisted scrutiny in income tax.

The move will give a big relief to industry. But the risk parameters will have to be designed properly in line with specifics of various industries to make the selection process efficient, says Pratik Jain, partner, KPMG.

Intelligence from all quartersstate tax departments and central tax departments, including income taxwould be pooled in to make the selection of cases for audits more intelligent and sharper under the GST. The threshold for such audits has not been decided, but it is likely to be high enough to leave out a large percentage of those required to deduct or pay indirect taxes.

Those below the threshold will have to file GST returns on a voluntary basis and may face random scrutiny. The lenient treatment is expected to help increase compliance and increase tax collections, the official said.

The statutory audit will, however, be very comprehensive and focused and not only compliance with the legal requirements but be designed to keep a check on the areas of misuse.

The format of these audit reports will be prepared by the Central Board of Excise and Customs and its state government counterparts in consultation with the Institute of Chartered Accountants of India, Institute of Costs & Works Accounts of India and Institute of Company Secretaries of India.

The GST, the major tax reform proposed by the United Progressive Alliance government aims to create a common Indian market. It will replace excise duty, additional customs duty and service tax at the Centre and VAT, entry tax, luxury tax, entertainment tax, tax on lottery and betting at the States level. The GST is a consumption tax under which both manufacturers and service providers will have the right to offset state taxes paid on inputs sourced from another state.