The Comptroller and Auditor General (CAG) of India has pointed out nearly 20,000 shortcomings involving more than Rs 12,000 crore in effected direct tax revenue during the 2007-2008 fiscal years audit of the union government. Of the shortcomings in the centres tax reports, 860 are referred to as major irregularities amounting to more than Rs 1,570 crore in losses. Most of these relate to simple accounting negligence, though there are a few cases of intended manipulation for personal and sectoral gains.

Of the lost revenue, the government has recovered more than Rs 216 crore so far. Concerns over indirect taxes, including central excise tax, service tax and customs receipts amounted to Rs 4,329 crore in revenue during the same fiscal year. In line with the deficiencies found in the indirect tax systems, CAG made about 30 recommendations. The government has accepted 90 per cent of the recommendations. As a result, the government has amended acts/rules addressing the concerns raised through earlier audits, said B B Pandit, director-general, CAG.

Keeping in mind the audits findings, the 2009 Finance Bill proposes to amend the Income Tax Act by disallowing contracts on projects funded solely by the government and amending cap profit by artificially inflating them.