| FinMin working on new framework for GST |
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New Delhi, 28 May In a renewed attempt to introduce a national goods and services tax ( GST), the finance ministry is trying to address Bharatiya Janata Party (BJP) - ruled states' concerns in the proposed legislation. It has prepared a note on GST for Prime Minister Narendra Modi, while Finance Minister Arun Jaitley is planning to meet state finance ministers to remove hurdles in its introduction. Finance ministry officials were found digging out old speeches of Gujarat and Madhya Pradesh finance ministers to get as close to BJP's idea of GST as possible. " We are changing the emphasis," an official, asking not to be named, told Business Standard. Jaitley has asked the revenue department to make a presentation on GST before him on Thursday. The ministry might also look at forming an empowered committee, comprising revenue department officials, as well as experts from outside, to lay out a road map for its implementation. It's a clear signal that BJP, after blocking the reform while in Opposition, now wants to speed up its implementation. Lack of agreement between the Centre and states, particularly BJP- ruled Gujarat and Madhya Pradesh, has delayed GST, originally scheduled for rollout on April 1, 2010. But in its manifesto, BJP committed itself to "bring on board all state governments in adopting GST". While the note to PMO mainly lists out the developments in GST so far, along with aroad map for its implementation, the presentation to be made to the new finance minister might give possible solutions to end the stalemate. States are opposing subsuming entry tax, petroleum and alcohol in GST, as that would dent their revenues. Only after reaching a consensus with states on these issues can the Centre move forward. It will have to table a revised Constitution amendment Bill in Parliament as the earlier one lapsed with the dissolution of the previous Lok Sabha. Turn to Page 17 >
IN SYNC WITH BJP- RULED STATES' DEMANDS Prime Minister Narendra Modi ( right), External Affairs Minister Sushma Swaraj and Finance Minister Arun Jaitley pay tributes to freedom fighter Vinayak Damodar Savarkar on his birth anniversary in the Central Hall of Parliament, New Delhi, on Wednesday. |
| Click: Article continued from… framework for GST |
| FinMin working on new framework for GST |
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At his meeting with revenue department officials on Wednesday, Jaitley asked for an early meeting with state finance ministers to iron out differences over the tax, officials said. The National Democratic Alliance is short of a two- thirds majority, or 361 seats, needed for the amendment in the Lok Sabha. In the Rajya Sabha, the ruling alliance has 62 seats but needs 160 votes to pass the Bill. Half the states also need to okay the Bill. "It will be a real challenge to get the Bill passed in Rajya Sabha," the official said. The new indirect tax regime will subsume most of the taxes levied by the Centre, such as excise duty and service tax, besides the state- imposed ones like the value- added tax and sales tax. The industry is awaiting its introduction as that would remove the cascading affect, boost revenues, and aid economic growth. |
| The administration of this tax urgently requires an overhaul before the Goods and Services Tax becomes a reality |
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Although corruption is prevalent in all the arms of administration in India, its existence in the administration of VAT is mind- boggling. This is mainly because concomitant reforms in administration were not followed through when VAT was adopted by the states between 2003 and 2008. Most states instead of overhauling their local tax administrations, merely effected some patchwork changes that were tacked on to the old sales tax set- up. VAT was an important tax reform because it removed the cascading effect of multi- point sales tax through the mechanism of credit set- offs — in other words, VAT does not increase the price of the commodity more than the amount of tax. Also, due to the credit mechanism, this tax reduces transaction costs for large corporations as well as small dealers, and has provided the business community an opportunity to improve their operations and to gain a competitive advantage in a global economy. However, the increasing magnitude of corruption in state VAT administrations is mainly on account of the existing organisation for tax administration and related procedures. For instance, in most states, the existing organisation for VAT is based on geographic zones. Accordingly, the state is divided into wards or circles, which are primarily activity units. This traditional design maintains close proximity between the taxpayer and tax administrator. The excessive direct contract between taxpayers and tax officers is not very healthy for smooth tax administration. It would make better sense to re- organise the tax department on the basis of functions. For example, the work related to revenue receipts should be a separate cell, as should the follow- up action against defaulters, which is an important component of VAT management. In this set- up, special attention needs to be paid to the role of delinquents. A separate wing is needed to handle such dealers — to contact them on the phone, send them reminders and personally meet them. Similarly, it is important to have an audit wing with auditors who are specially trained to examine the accounts of the dealers. These auditors should have experience in the verification and enforcement branch, and should be responsible for the fieldwork of audit and assessment. Each auditor has to be given a specific audit assignment. Most states lack such audit wings. Also, the existing system of VAT does not give due importance to a client services department, which would help increase voluntary compliance and reduce the interaction of the dealers with the department. On similar lines, it is important to reorganise the tax department by setting up a separate wing for the registration of dealers to enable them to have online or on- the- spot registration. Many states have refurbished their VAT departments to give them a new look, but the facility of online or spot registration, related procedures and the amount of information sought does not match the requirements of a modern- day VAT administration. A cursory look at the procedures related to registration, payment of tax, auditing and so on indicates that most of the states have prescribed procedures that call for direct personal contact and interaction between taxpayer and administrators. This gives the taxpayer the opportunity to collude with the tax official to reduce his tax liability. Given that the same processes are used even though the introduction of VAT expanded the number of registered dealers, the magnitude of corruption in the VAT administration has inevitably grown exponentially. It is imperative, therefore, to re- engineer the tax administration on a functional basis and to rationalise the procedures by adopting information technology. The eSeva Kendras in Andhra Pradesh provide a good example of how this can be done through the use stateofthe- art technologies, as do the client services provided by the GST administration in Canada. The significance of this reform will be felt much more when GST is introduced and the department has to manage a large number of dealers operating in the system. Streamlining the system will have huge implications for India as it seeks to integrate with the global economy. The writer is former member- secretary of the Empowered Committee of State Finance Ministers for the Reform of Sales Tax and currently director, Foundation for Public Economics and Policy Research, New Delhi Most states instead of overhauling their local tax administrations when they adopted VAT, merely effected some patchwork changes that were tacked on to the old sales tax set- up |
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