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Ramblings of a citizen and experiences of an entreuprener

This is about my way of life. It has two parts, one is related to the world around me and the other part is my experiences as an entrepreneur. Check out our website www.shaktiindia.com

Thursday, February 27, 2014

The Reluctant Entreuprener: Paying Commercial Taxes



A happy new year to the readers and given the situation, a safe one as well. The Christmas season is also a business opportunity. Alert, commercial taxes department decided to ensure that this festive season no one evaded taxes. So, they literally got up early, went to the interstate bus stop and caught a hapless passenger with a suitcase full of Christmas decorations. He had no bill and the INSPECTOR who had only the State’s interest at heart wanted to collect the tax. We must all give this brave and committed officer a standing ovation. He actually sacrificed his sleep and added a few rupees to the States empty coffers. Meanwhile thousands of rupees slipped in on trucks and even the roof of the bus.

We have been selling SHAKTI tanks in this State for close to two decades. When we started we had a level playing field. We were exempt from paying sales tax for some years, and the competition did not pay tax i.e. available without bill. Now, these tanks come into Goa not in a suitcase but by the truckload. I know, I caught one and handed it over to the Department. Unfortunately the officer concerned was not as energetic as the bus stop inspector and the consignment was released, to be sold without tax.

When India, joined the VAT regime, we lost our level playing field. Now we pay the tax and our competition continues to sell without bill. At that time Mr. A.T. Kamat, Commissioner of Sales Tax asked industrialists to make a sacrifice for the Nation and not oppose the loss of the sales tax exemption. My question then is relevant today; when will the Commercial Tax department start batting for the State/Nation and begin doing their job and get every item to be sold on an invoice with the taxes paid so every establishment has a level playing field?

I once gave another Commissioner Mr. Pai Bir,"intel". He was told that a truck load of tanks was headed to Goa and from the brand, I also told him it would go to South Goa. Two hours later he called me, very upset. He was waiting for the truck at the Margao end of Zuari Bridge with his team and no truck was visible. One can only laugh because everyone but this department knows that trucks cannot cross the Zuari bridge due to laod restrictions.

When you start your business you will calculate the price that should be feasible in the market. Now, on finding that adding the tax and doing business legitimately puts your company at a disadvantage, many smaller players opt to follow the same path i.e. sales without bill. Even if caught, and the chances of that happening are slim, one can assume an escape with a payment below the table. With such a low down side on one hand and on the other hand a loss of market share if sold with tax, what would you choose? This is exactly what the bus passenger did – he bought without a bill, and would also sell without the bill.

The other major hassle of registering with the Commercial Tax dept. is the paper work. You have to file returns, you have to go for assessments, you have to follow up for C forms etc., and chair bound officials keep calling you to remind you of the due date to deposit the VAT collected. If you are unregistered, then no one knows you exist and therefore there is no paperwork. Some businesses opt for dual model, show some sales officially and rest in is cash. A la, best of both worlds.

Despite the many pluses of avoiding VAT, I would suggest that each new start up and possibly even those currently avoiding any kind of taxes, pay them in the interest of your own growth and peace of mind. For your customer it is “proof of purchase” and access to after sales service. It is a bit harder but surely more profitable in the long run. As technology advances, the playing field will become level, be there to take advantage. For the customer this "proof of purchase" is very important in case he wishes to enforce his rights as a customer in case of a defective product. The customer should consider paying VAT as an insurance against a defective product.

In the meantime, petition your local industry Trade body to force the department to make the playing field level. Happy selling.

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