Ease of Business: Legit or not?

There is a story I never tire in telling. The Sales Tax Commissioner made a statement at a meeting, when Goa was transiting from an sales tax exemption regime to VAT. He wondered when Goa's industrialists would begin thinking about the nation and not just their own benefits. This was in relation to the fact that with exemptions of sales tax being removed, prices of all locally manufactured goods would increase by the VAT amount of 12.5%. Naturally, there was a resistance.

My immediate question to him was, VAT will come to Goa, so businessmen are only asking the Government to think about the promise made. However, when would the Sales Tax department officials begin thinking of India. This is because the only people who do not know that goods are available without bill all over Goa. With the removal of the exemption the level playing field was gone. Earlier, imports did not pay tax and local units were exempt. Now, local units would have to pay VAT, and imports would continue without paying. Pretty unfair.

Another Commissioner when discussing this subject had this explanation. His dealer in Mapusa pays a huge amount of sales tax every month, should he penalise or haul him up for selling a part of his goods without bill.? I wonder who should be answering this question or solving his problem. There is no such thing as partial compliance, we have to comply every transaction. So we have a cozy 50:50 with bill regime, with the blessings of the department.

Trucks enter Goa and can get away, especially on weekends without making any entry at the border. Once inside, the invoice copies used are destroyed and the material becomes without bill. Contrast this to when material leaves Goa. If the CST no of the customer is not mentioned, the consignment gets held up at the Karnataka or Maharashtra border. Karnataka has gone digital as have a few other states. Before material leaves the factory, an acknowledgment has to be taken electronically called 'E sugam”, without this document the consignment cannot cross into Karnataka. Once issued the party is liable to account for the invoice and ofcourse pay the tax.

Why would anyone make an issue of paying taxes. It is not just paying the tax, in addition a manufacturer would have to file his returns, after which there is an assessment of the returns which is time consuming. During assessment the officer can interpret the rules and allow or disallow what is claimed and increase the tax liability. Appealing could turn out more expensive than the amount saved so usually it is paid and matter closed.

Notice the hassles in actually collection and paying taxes. One would imagine that the Government which which benefits from the tax collected would make every attempt to encourage and make it easy for collection and paying the tax. In reality it is the opposite. This is reflected in the market place where a lot of goods are available without paying the tax. One dealer explaining why he shifted to “without bill” model, when he collected tax he had to not only take trouble to pay it he also had to file returns attend assessments etc, etc. Now, they do business in cash and have no such hassles of collecting, paying or filing returns. Which is better.?

One day there was a call from a sales tax official, he was reminding us that we had to pay VAT collect in the previous month the next day. This is understandable, with mining shut Government has to collect for all other sources and collect quickly. He was a bit offended when asked to go out into the market and collect form those not paying because most companies pay VAT collected into Government treasury in time. Most of the departments manpower is wasted on internal paper work. They have no time to go out and enforce compliance.

The problem defined above is well known, can there be any solutions. One department which is doing extremely well and can be used as an example is the Central Excise. The payment/returns are online, they have rationalised duty rates and there are not many slabs, so very little scope to misinterpret a product classification and choose lower duty, which usually resulted in litigation. The famous case of Old Spice, was it a cosmetic or a medicine. All forms are online. So the sales tax department can emulate this. This should not be difficult because they have started issuing C forms online and that is very good.

Recently it is reported that the Government of India is planning to give tax breaks to encourage credit card usage, basically reduce cash transactions. Similarly, the sales tax department can give incentives. If a dealer collect more tax than the previous year he would get an incentive, it could be monetary viz, 1% of additional tax collected. Or it could be non monetary. If tax collected exceeds 30% of previous year, his returns will be accepted as final. Oh what a relief that would be. So much of time saved. Under PM Modi's ease of business program, can the sales tax department make a change?