KARNATKA VALUE ADDED TAXG2B e-Governance Initiative in:

E-Governance Initiative in Commercial Taxes Department, Karnataka

The Commercial Taxes Department (CTD) administers the VAT scheme in Karnataka

Millions of Commercial Tax transactions occur daily Registration of Dealers, acceptance of returns and tax, issue of statutory forms, re-assessment of cases, vigilance, check post operations

Traditional System

Tax payers need to physically go to the offices to Register File returns every month Remit taxes Obtain C forms, F forms, Delivery notes

etc Bulky paper documentation –

impossible to evaluate Lacked transparency

Web-enabled System - EFS

Interaction with dealers is through internet

Challenges Internal processes, laws and rules were

to be modified Installation of a robust hardware system

across the state Capacity building:

Within the CTD Dealer education and training

EFS contd.

Timely delivery of services mandatory All services under CTD brought under

Karnataka Guarantee of Services to Citizens Act

Default in delivery of service attracts monetary penalty on the officer responsible

Schemes under EFS E-Sugam: (Simple Uploading of Goods Arrival

and Movement) – for issue of delivery notes Dealers can upload details of bulk transactions to a

central server Automatic acknowledgment with a unique number Unique number to be used as proof in goods vehicle

E-Suvega: (Simply Upload about the VEhicle and Go Across) – for check post operations When commodities are transported through

Karnataka, transporters obtain a transit pass at the entry check post and submit it at the exit checkpost

If a TP is not surrendered at the exit checkpost within the stipulated time, entire tax on the goods become liable

Watching issued TPs for surrender was ineffective in the manual regime. This has become automatic under e-Suvega

Schemes under EFS contd.

E-Varadan: VAT Registration and Documentation access through the Internet Application is filled online and uploaded

along with supporting documents Date of inspection is fixed and

communicated After inspection and approval,

registration certificate can be downloaded and printed by the dealer

Schemes under EFS contd.

E-Varadi: VAT Return and Data through Internet Dealers are given unique user name and

pass word They can log in and file their returns

online Dept. can capture vital data at the

primary source Further processing is made easy

Schemes under EFS contd.

E-Payment of taxes Remittance of taxes through net banking Eliminated the hassle of cheque clearing Automatic reconciliation is effected through

partnership with the Reserve Bank and Treasury E-Grahak: (Guaranteed Response Against

Hidden Activities of tax evasion in Karnataka) Policing by citizens Citizen can give complaint against a dealer by

sending SMS to a designated number The complaint is registered, followed up and

results are made available to the public

Schemes under EFS contd.

Online Issue of Statutory forms (C, F, E1, E2 etc.) Interstate sales between registered

dealers attract concessional rate of tax Purchasing dealer obtains a C form from

the department and gives it to his seller to file in his VAT office

Under the scheme these forms can be applied for online, scrutinized and cleared immediately

Schemes under EFS contd.

E-CAS: (Comprehensive Assessment System) to strengthen internal accountability To increase accountability among

assessment officers Requires online submission of

assessment orders Automatically send for peer review to

another officer – comments are made available to all officers

Appeal orders linked to the assessment order – file tracking made easier

Schemes under EFS contd.

E-Grievance Registered dealer can submit grievances

online The addressed officer updates responses

online Can be monitored by supervising officers

Outcomes

Number of dealers visiting offices reduced from 30000 to 1000 per day

Revenue growth rate of about 22% in 2011-12

Environment friendly – saving atleast 3 tons of paper per day

Average waiting time reduced from 7 minutes to 1 minute

Increased transparency and accountability Reduction in corrupt practices Effective and efficient service delivery

Recognition

The initiative was conferred Prime Minister’s Award for Excellence in Public Administration for 2011-12

E-Checkpost project was awarded “National e-Governance Award 2012, Gold” in the category of ‘Excellence in Government Process Re-engineering’

IS AUDIT OF EFSIncluded in the Revenue Report of the year

ending 31 March 2013

Observations…

Excess Representation of Tax Paid in Original Returns Adjustment of Interest – 1.98

crore Adjustment of other payments – 93.43

crore

Inadequate Input Controls to Prevent Excess Brought Forward Revenue Loss of about 13.3 crore

Observations – e-Varadi

Absence of provision to levy penalty for understatement of tax liability in original return If tax liability is increased by more than

5% in a revised return, penalty is leviable at 10% of the hype

Tax effect: 30.12 crore Excess Tax Collected by Dealers

No control to levy excess tax collected by dealers

Observations – e-Varadi

No control in the system to revert a composition dealer when his yearly turnover exceeds 15 lakh

Hoteliers opting for composition are liable to pay tax at 4%. Lack of control to ensure this resulted in payment at 1% (69 lakh)

Metal Crushing Units opting for composition should pay tax on the number of machines – no question of nil returns. System had no control to ensure this

Observations – e-Varadi

Contractors can claim deduction on subcontractor turnover if the subcontractors are registered under the Act and pay taxes

The system has no control to validate subcontractor exceptions against the turnovers declared by the subcontractors in their returns

Observations – e-Varadi

System does not ensure returns filed for all periods – missing returns Returns of subsequent periods are

accepted without prompting for the missing period

System has no control to prevent input tax credit on purchases made from composition dealers

Observations – e-Payment

System has no provision to compute interest on belated payment of tax (1.65 crore)

5 cases of deemed acknowledgement for part payment of tax through e-payment

1264 cases of under payment of taxes

Observations – e-CST FormsThe system lacked controls to ensure that

Filing of forms corresponds to the CST sales turnovers declared in the returns.

CST Invoices adequately cover the value of individual forms

Invoices are not repeated for different forms CST and KTEG modules are not integrated

compromising efficiency When dealers apply for C forms for purchase of

KTEG liable commodities, the system should watch declaration of the same in KTEG returns.

Observations – e-Sugam

To prevent misuse of delivery notes, the CTD has established limitations on validity period based on distance between origin and destination

The dealer, while requesting for a delivery note, has to specify his date of delivery.

The validity period limitation is not mapped into the system to limit the delivery date

Many notes have been inspected and cleared beyond the validity period

Observations – e-Grahak Lack of continuous effort through repeated

advertisements. Absence of website optimization efforts – the

facility does not present itself to related web searches

Unless a citizen knows the exact term ‘e-grahak’ and what the service provides, it is unlikely to be used to its full pontential.

The facility is underutilized by the public - only 435 requests from the citizens during the period

CTD attended to 112 cases after a delay of more than a month, and 63 cases after two months

ADVANTAGES OF POSSIBLE INTEGRATIONS…

Income Tax

Possible under declaration of income might be forthcoming from the returns filed under VAT

Purchase invoices, delivery notes of dealers give indirect indication of transactions

Central Excise

PAN of dealers are captured in VAT EFS – offering possibility of linkage

Central Excise is levied on the ‘clearance’ from factory gate by way of sale etc.

VAT EFS offers the possibility for indirect validation of sales of a dealer from the purchase invoices of his buyers

Service Tax

Registration database of VAT might bring to light unregistered dealers liable to register under Service Tax

For services including works contract and out door catering, service tax is levied after exempting the turnover relatable to material transfer.

Validation of the same can be achieved through integration with VAT returns of the corresponding dealers.

Service Tax contd.

For services where an element of material transfer is inseparable, percentage abatement is granted under service tax.

Rationality of such percentage abatement might be forthcoming through an integration with the VAT system

Goods and Services Tax

Under the proposed GST scheme, the tax base will extend to all goods and services

No distinction will be made between goods and services

Will subsume many Central and State Taxes

Taxes proposed to be subsumed in GST

Central Central excise Service tax Additional Customs Duty Surcharges and cesses

State VAT Entry Taxes Entertainment Tax, Luxury Tax, betting

tax etc.

GST preparedness

The proposed GST is consumption based – the final consumption is taxed

Destination principle is recommended – GST to be imposed on value addition of all taxable goods consumed domestically (imports are taxed and exports are zero rated)

Credit method of computation – amount of tax levied is explicitly stated in the invoices, hence more transparent and easy to administer

GST Preparedness

Destination principle, consumption base and credit method are akin to the VAT system currently followed

VAT computerization is also modeled along these lines

Other state levies like ET, LT, BT are also managed through a computerized system fully integrated with the VAT system

Hence present system is in tune with the proposed structure of GST