A Study on Tax Audit under GST (Goods and Services Tax)

 

Divyashree. C¹, Ajay R²

¹Student, FMC, MS Ramaiah University of Applied Sciences, Gnanagangotiri Campus,

MSR Nagar, Bengaluru - 560054, Karnataka, India.

²Assistant Professor, Faculty of Management and Commerce, MS Ramaiah University of Applied Sciences, Ganangangotiri Campus MSR Nagar, Bengaluru-560054, Karnataka, India.

 

ABSTRACT:

The implementation of GST just happened few years ago. At the initial stage the taxpayers were not much aware about the GST tax audit. It had become the duty of the auditor to educate their taxpayers about the rules and regulations of GST tax audit. The Chartered Accountant and Cost Accountant had to verify each and every documents of their taxpayer before filing the returns. The purpose of this study was to find out the impact of GST tax audit on taxpayers. This paper titled as “A Study on Tax Audit Under GST (Goods and Services Tax)”. Both primary data and secondary data is been used for this study. Primary data is been conducted through questionnaire. Totally 123 responses has been collected from the respondents and secondary data obtained from journals, websites, articles, research papers. After analyzing the responses received from the respondents. By using SPSS statistical tools few tests have been conducted. Tests like Reliability Analysis, Linear Regression, Descriptive Statistics, Factor Analysis and Frequencies is been done. The summary of the responses obtained from respondents is been depicted through Pie Chart in the report.

 

 

 

INTRODUCTION:

Section 11 of the Finance Act introduced tax audit in the year 1984 by insertion of a new section 44AB. Tax audit is the official examination of the tax department to the tax return that declares by taxpayers as required by law. Audit under GST involves examination of records, returns and other documents maintained by a GST registered person. It also ensures correctness of turnover declared; taxes paid, refund claimed, input tax credit availed and assess other such compliances under GST act to be checked by an authorized expert. A registered person whose turnover is more than 2 crore needs to get his accounts audited by the chartered accountant.

 

LITERATURE REVIEW:

(Soliha Sanusi, Normah Omar, 2017) In this paper author did the research on audit probability and tax knowledge determination on GST compliance. For this paper a survey was conducted through questionnaire were in the respondents had to answer as per the likert scale. The respondents were the business operators who had registered under the GST system. From the survey results we knew that both the audit probability and tax knowledge contributes significantly to the compliance. (R. Narayanswamy, K. Raghunandan, 2019) In this paper author examines the association between the mandatory audit firm rotation, audit quality, audit fees and audit independence in India. This paper is completely based on secondary data from Centre for Monitoring Indian Economy (CMIE). Low audit quality and lack of independence have been attributed to auditors. Mandatory audit firm rotation doesn’t seem to have significant effect on audit fees. Thus mandatory audit firm rotation needs to have few measures to improve auditor independence and some countries require mandatory audit firm rotation and India is one among those countries.

 

Manish Gupta, Vishnu Prasad Nagadevara, 2017:

In this paper author did research on audit selection strategy for improving tax compliance. The tax administration is required to audit all the taxpayers or few of the taxpayers to check the evasion of tax and ensure compliance. Conducting audit is not an easy job for both the taxpayer and the tax department and which involves cost for both of them. Thus the tax administration agencies need to use limited resources to achieve more taxpayer compliance. Therefore this paper uses data mining algorithms as the best cost effective option to make audit selection more systematic and operative.

 

 

Ephrem Bedada, 2017:

In this paper the author did research on the impact of tax audit on the tax compliance. Both primary data and secondary data were used in this paper. Primary data was collected through questionnaire and interviews; secondary data was collected through journals, literatures and official reports. Therefore the finding of this paper shows that there is a strong relationship between the two variables (i.e., tax knowledge and education) on tax compliance level.

 

PROBLEM FORMULATION:

Research Gaps:

·       From the literature review conducted, it was found that

the accountant or the taxpayer must be educated about it and must have tax knowledge.

·       Since it’s been two years that GST (Goods and Services Tax) is been implemented so, the taxpayers were not much aware about the GST tax audit.

·       The study on GST tax audit is been just limited to 123 responses.

·       Research is been made using both secondary data and primary data

 

RESEARCH OBJECTIVES:

R01:   To study about the GST tax audit in India.

R02:    To identify whether the taxpayer as filed his turnover and claimed the eligible input tax credit correctly.

R03:   To analyze whether the taxpayer has filed his returns and claimed the refund correctly.

R04:   To assess the opinion or suggestion of taxpayers on GST tax audit.

 

HYPOTHESIS:

Hypothesis 1:

H⁰    Turnover declared and Input Tax Credit has no significant impact on GST tax audit.

H¹       Turnover declared and Input Tax Credit has significant impact on GST tax audit.

 

Table-1

Source: IBM SPSS Statistics 23

 

Table-2

Source: IBM SPSS Statistics 23

Interpretation:

·       For Q13 the sig value is 0.05 so we will reject null hypothesis and accept alternative hypothesis.

 

H⁰ = Null hypothesis – Rejected

H¹ = Alternative hypothesis – Accepted

 

·       For Q14 – Q25 the sig value is more than 0.05 so we will accept the null hypothesis and reject the alternative hypothesis

 

H⁰  = Null hypothesis – Accepted

H¹  = Alternative hypothesis – Rejected

 

Hypothesis 2:

Filing of returns and claiming refund has no significant impact on GST tax audit

Filing of returns and claiming of refund has significant impact on GST tax audit

 

Interpretation:

·         For Q1, Q2, Q5, Q7 the sig value is less than 0.05 so we will reject null hypothesis and accept alternative hypothesis.

= Null hypothesis – Rejected.

=Alternative hypothesis – Accepted.

·         For Q3, Q4, Q6, Q8, Q9, Q10, Q11, Q12 the sig value is more than 0.05 so we will accept the null hypothesis and reject the alternative hypothesis.

= Null hypothesis – Accepted.

=Alternative hypothesis – Rejected.

 

METHODS AND METHODOLOGY

Table -3

1	To study about the GST tax audit in India	Secondary data collected through research papers, journals.
2	To identify whether the taxpayer as filed his turnover and claimed the eligible input tax credit correctly.	Primary data collected through questionnaire.
3	To analyze whether the taxpayer has filed his returns and claimed the refund correctly.	Primary data collected through questionnaire.
4	To assess the opinion or suggestion of taxpayers on GST tax audit	Primary data collected through questionnaire.

 

RESEARCH METHODOLOGY:

The research design adopted for achieving the objectives was descriptive in nature. The paper employs the use of both primary and secondary data. The primary data was collected through a structured questionnaire. The questionnaire was targeted towards taxpayers. The first part of the questionnaire enquired the personal details of the respondents; the remaining part contained the questions based on the variables identified.

 

The secondary data was collected through papers and literature. Variables for the purpose of the study were identified along with the research gap.

 

RESULTS:

Reliability Analysis

The Cronbach’s alpha coefficient was tested. The below table describes the alpha scores for all the variables. As per the general rule of thumb if the Cronbach’s alpha is above .70 then it is at the acceptable level of reliability.

 

Table-4

Source: IBM SPSS Statistics 23

 

Interpretation:

The value of Cronbach’s alpha is .739 or 73.9% which indicates that it is at the acceptable level of reliability.

 

Case Processing Summary

Table-5

		N	%
Cases	Valid	123	100.0
	Excludeda	0	0.0
	Total	123	100.0

Source: IBM SPSS Statistics 23

 

Interpretation:

The case processing summary tells us that all the 123 variables which is been obtained by the responses given by the respondents through questionnaire are valid and it gives 100% total acceptance.

 

Factor Analysis:

Factor analysis is basically a statistical method which is been used to describe the variability among the observed variables. Factor analysis is related to Principal Component Analysis (PCA) but both of these are not identical.

 

Kaiser-Meyer-Olkin (KMO) and Bartlett’s test

 

Table-6

Kaiser-Meyer-Olkin	Approx Chi-Square	0.515
Bartlett’s Test of Sphericity		248.347
	df	120
	Sig	0.000

Source: IBM SPSS Statistics 23

 

Interpretation:

Basically KMO will not depend on the sample size and the value for KMO must be close to 1, if the value is close to 1 then it will indicate that the factor will be useful in data hence the value of KMO obtained is 0.515 which is close to 1 hence the factor is useful in the data. In Bartlett’s test of Sphericity we see the value of Sig. If the value of Sig. is less than 0.05 then the significance level indicates that the factor will be useful in the data. If the value of Sig. is more than 0.05 then the significance level indicates that the factor will not be useful in the data. Here the value of Sig. obtained is 0.000 hence the significance level indicates that the factor is useful in the data.

 

Rotated Component Matrix

Table-7

Variables	Component
	1	2	3	4
Filing Returns	-0.448	-0.621	0.018	0.351
Auditor files return	-0.223	0.779	-0.063	0.317
Penalty	-0.213	0.643	0.128	-0.109
Time to receive claim	-0.206	-0.046	0.842	0.001
Partly for Business Purposes	0.244	0.116	0.770	0.031
HSN(Harmonized System of Nomenclature)	0.116	0.000	0.032	0.938
Payment of wrong tax	0.837	-0.050	-0.066	0.118
Failed to pay tax	0.713	-0.239	0.096	0.002

Source: IBM SPSS Statistics 23

 

Interpretation:

Rotated component matrix represents to determine what the component represents. Even in rotated component matrix values greater than 0.5 is been considered. For each factor at least in any one component the value must be greater than 0.5. If the component has plus (+) or minus (–) sign then it indicated the direction of the relationship. The minus (–) sign indicates that the component has inverse or negative relationship. The plus (+) sign indicates that the component has direct or positive relationship.

 

LIMITATION OF THE STUDY:

The study has been restricted to Bangalore region and considered. The presented information is based on the knowledge of the individual and the data provided by the respondents

 

CONCLUSION:

Implementation of GST just happened few years ago at initial days the taxpayers were not much aware about it and the taxpayers were finding difficult to file their returns. All the accounts and records must be verified by the Chartered Accountant or Cost Accountant before filing the return. At initial days it was the duty of the auditor to educate the taxpayer’s about the GST tax audit and any changes which will be inculcated in GST tax audit, the auditor must keep informed the taxpayer about the changes. The auditor must also check whether the taxpayer has filed his turnover correctly and if the taxpayer was eligible for input tax credit even that must be claimed correctly. Before the payment of tax the auditor must make sure that the taxpayer as filed all his returns according to the provisions of law and if there was any refund to be claimed even that must be done as per the provisions. For the smooth functioning of GST tax audit there are few things which needs to be concentrated on –

·       Verification of place of supply to check whether correct GST is charged

·       Verification of other income ledger

·       Classification of goods / services and their respective rate.

 

SUGGESTION FOR FURTHER RESEARCH:

The study is mainly concentrated on GST (Goods and Services Tax) in India. The analysis of the study is mainly based on primary data and secondary data. Further work can be extended by considering only secondary data or only primary data and in this I have identified only few variables were in more number of variables can be identified for future work and this study can also be done for foreign countries as well because in few countries GST was implemented earlier itself so the availability of data will be more.

 

ACKNOWLEDGEMENT:

The authors are grateful to the authorities of M.S. Ramaiah University of Applied Sciences for the facilities.

 

CONFLICT OF INTEREST:

The authors declare no conflict of interest.

 

REFERENCES:

1.      Sanusi, S., Omar, N., Sanusi, Z.M. and Noor, R.M., (2017). “Moderating effect of audit probability on the relationship between tax knowledge and goods and services tax (GST) compliance”. Pertanika Journal of Social Science and Humanities, 25, (pp.231-240).

2.      Narayanaswamy, R. and Raghunandan, K., (2019). “The effect of mandatory audit firm rotation on audit quality, audit fees and audit market concentration: Evidence from India”. IIM Bangalore Research Paper, (582).

3.      Gupta, M. and Nagadevara, V., (2017). “Audit selection strategy for improving tax compliance: application of data mining techniques”. In Foundations of Risk-Based Audits. Proceedings of the eleventh International Conference on e-Governance, Hyderabad, India, December (pp. 28-30).

4.      Bedada, E., (2017). “The Impact of Tax Audit on the Tax compliance”. (pp. 35-48), (Doctoral dissertation).

5.      Dadi, M., (2017). “Problems of Tax Audit of Categories “A” tax payers”. (pp. 248-253).

 

Accepted on 26.11.2020           ©AandV Publications All right reserved