G2B 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 to 1000 per day  Revenue growth rate of about 22% in  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  E-Checkpost project was awarded “National e-Governance Award 2012, Gold” in the category of ‘Excellence in Government Process Re-engineering’

Included 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 – 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: 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 Forms The 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

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