Government of KarnatakaDEPARTMENT OF COMMERCIAL TAXES

Project Transformation

Transforming the Commercial Tax Regime in Karnataka

Pradeep Singh Kharola,

COMMERCIAL TAXES – THE BACKBONE OF STATE FINANCES

State Collects about Rs 37,000 Crores (6 billion USD)/year

VAT and Sales Tax are the major components

The Department has about 800 officers and about 6000 staff

About 500,000 lakh dealers (traders) collect tax on behalf of government and remit it monthly.

The Department has about 200 offices located all over the state.

THE BASICS OF SALES TAX/VAT COLLECTION

It is an indirect tax and each sale transaction needs to be captured.

The traders/dealers act as agents of government for tax collection.

Each transaction shall be covered by a bill INDICATING TAX ELEMENT.

The tax collected to be remitted monthly along with a summary of details – the return.

COMMERCIAL TAXES DEPARTMENTBACKBONE OF STATE’S FINANCES BUT:

Outdated systems lead to pilferage and corruption.Cost of compliance very heavy for tax payers – permissions, frequent visits, harassmentPaper based systems unable to cope with high volumes. Emphasis on regulatory role and policingBogged down by routine work – no attention to analysis

High pilferage

More physical controls

Higher cost of compliance and

discretion

More corruption

‘PROJECT TRANSFORMATION’

Department as regulator

Frequent visits by dealers

Policing by Department

Paper based information

Old paradigm – Post event confirmation

Indifference of citizens

Department as a service provider

All services at doorsteps

Self Policing by Dealers

Everything is electronic

New paradigm - Pre event confirmation

Involvement of citizens

FROM TO

A new

Paradig

m

Policin

g by

Citizens

Transparency

andAccountabil

ity

E -

SUGAM

E -

SUVEGA

Comprehen

sive

Assessment

System

E -

GRAHAK

E - CST

E -

VARDANE -

VARADI

E -

GRIEVANCE

E -

PAYMENT

Services at

doorsteps

M -

SUGAM

E-

reconcile

Project

Transformat

ion

THE FOUR PILLARS

E-

enforcement

system

TRADERS NO LONGER HAVE TO VISIT TAX OFFICES- ONLINE REGISTRATION (E-VARDAN)

The registration process from filing of application to issue of certificate was made on line.

The Registration number and other details kept in public domain and paper certificate requirement dispensed with. Details accessible on the website, even through SMS

On an Average 5000+ online registrations are issued monthly

On an average each dealer had to visit the department about 10 times a month – about 150,000 lakh visits per day all put together.

FILING OF RETURNS IS ONLY ONLINE –E-VARADI

All traders enabled to file monthly returns electronically.

Filing of erroneous returns ruled out. Filing not possible unless payment of

tax is made. Achieved 100 % e-filing in 3 months of

introduction of e-filing (July 2010) 415,000 Lakhs returns received

every month

TRADERS NEED NOT COME TO OFFICE FOR REMITTING TAX- (E-PAYMENT AND E-RECONCILIATION SYSTEM)

Remittance by cheques was beset with difficulties Trader had to come to the office Cases of cheque bouncing Holding on to cheques Reconciliation virtually impossible

The remittance was made electronic (95% of collection comes through e-payment) This was not merely ELECTRONIC PAYMENT. But a

comprehensive remittance and reconciliation system integrating the department, the bank, the RBI and the Government treasury.

The RBI has recommended this system to all states.

E-PAYMENT & E-RECONCILIATION PROCESS

STATUTORY FORMS – SHIFTING FROM POST DECLARATION VERIFICATION TO PRE-EVENT

CONFIRMATION Some transactions which

attract zero tax or concessional tax like sale for exports, stock transfers, interstate sale.

The process of issue of these forms is beset with all traditional problems like speed money etc.

All these declarations need to be verified physically – an impossible task given the volume – 2 lakh forms per month.

The tax liability shifts from the despatching dealer to the receiving dealer. The receiving dealer indemnifies the despatching dealer by giving him a declaration in a form. These forms are issued on stationary (having security features) by the tax offices.Statutory Forms are• C Form• E1 Form• E2 Form• F Form• H Form• Delivery Note• Transit Pass• TDS Forms

PAPER BASED FORMS SUBSTITUTED WITH ELECTRONIC DECLARATIONS.

A system of electronic declaration and downloading of forms introduced.

The trader receiving the consignment applies on line with all details of the transactions including about the selling trader.

The tax office processes the information and permits the trader to download the form.

The details of the form are kept in public domain for anyone to verify authenticity.

No need for physical verification as the transaction gets debited to both the traders account. A system of one

trader policing another

ALL SERVICES UNDER THE ‘RIGHT TO SERVICES’ ACT

Commercial Taxes Department was the first to become fully Right to Services Act Compliant in the State.

The success rate is --98% Most of the services like issue of

‘C’ form,Delivery note,etc have been put on the automatic mode with no human intervention

The trader submits the request online – the computer verifies the details with its database – if the information is correct a form with all details duly filled in is generated and the trader can download it.

All 5 Principles of Right to Services have been adopted

1. Online information

2. Online request

3. Auto verification and approval

4. On time Delivery

5. Online Delivery

E-SUGAM – A PARADIGM SHIFTTHE BIRTH OF CHECK POST

every retail sale has to be preceded by a bulk sale through a truck.

Each truck to be accompanied with a Delivery Note duly filled up.

Blank delivery notes are issued by the tax office.

The entire effort of the department is to make a dealer issue a Delivery Note and then somehow force him to account it.

Checkposts are set up at vantage points to monitor these bulk sales. A copy of the delivery note is collected for future cross-verification

CHECKPOST: A LOSE-LOSE-LOSE SYSTEM

1• The number of documents collected per day was about

1,00,000 – thereby rendering any cross verification impossible.

2• Non surrender of a document at a checkpost generated huge

benefits for dealers – scope for corruption.

3• Tremendous discretion for checkpost officer.

4• Long waiting time for transporters at checkpost

5• Collected documents would sometimes be sold back.

6• Dealers faced difficulties in obtaining the blank delivery notes.

SOLUTION: A PARADIGM SHIFT

Earlier regime based on philosophy that dealer should use delivery note and Department’s entire effort was geared towards making dealer account the transaction in his/her books of accounts.

This paradigm sought to be reversed in –

e- Sugam – The dealer accounts the transactions first and only then can he/she despatch the goods.

BEFORE AND AFTER E-SUGAM

Anytime any anywhere from parallel web-sites

No need of printed form, SUGAM Number is sufficient.

SUGAM generation through SMS.

Average 25 Lakh SUGAM generated/month (One SUGAM/second)

COMPREHENSIVE ASSESSMENT SYSTEM- THE GAME CHANGER

Drawbacks of the Conventional System Assessment is basically verifying the

truthfulness of the Returns with the books of accounts and other documents.

It was totally opaque – nexus between the Assessment Officer and the trader.

Pick and choose policy existed – as only 3 to 5% of traders were assessed.

If the officer and the dealer colluded, the order just remained on file and the State suffered.

Malpractices like passing orders after the officer was transferred or had retired were prevalent.

THE COMPREHENSIVE ASSESSMENT SYSTEM – BREAKING THE NEXUS

Assignment of cases through central computer system.

The cases to be picked up based on objective algorithm

Orders to be digitised on the system and a unique number generated.

Each order allotted to another officer for peer review.

All revisions and appeal orders are digitised and linked to the original order. Tracking of cases is possible.

All malpractices such as ghost writers have disappeared.

The demand gets generated automatically, once order is digitised and collection is tracked

Knowledge Bank of orders created

INVOLVING CITIZENS – E-GRAHAK

Guaranteed Response Against Hidden Activities in Karnataka The basic element of sales tax

collection is that a bill has to be issued for each instance or sale/purchase.

Unless consumers insist for bills a seller may not issue a bill.

A genuine consumer has no recourse when a bill is not issued.

Some consumers do file written complaints but no significant outcome is achieved.

Citizen sends SMS Complaint

Mobile officer gets SMS

Control Room verifies & contacts

Citizen

Commercial Taxes Web-

site

Mobile Officer inspects the

shop

Citizens makes Complaints through SMS

2

3Informs the mobile officer

14 5

6 Action details to Citizen

HOW IT WAS ACHIEVED

E - CHECK POST

BPR – New Laws, Rules &

Procedures

Technological Interventions – e-

Sugam, m-Sugam, e-Suvega

Environment Building

Capacity Building

Supervision and Discipline

Transparency in Personnel Policy

BUSINESS PROCESS RE-ENGINEERING

1

• Change in law – Policy advocacy• Unique Selling Proposition was – hassle free

interactions with tax offices.

2

• Change in Rules – Trade Bodies involved in drafting new rules.

• Guaranteed Service Delivery

3• Change in form – Re-design of forms• The forms and screens designed by end users.

TECHNOLOGY INTERVENTION

Web based system for 4,50,000 + dealers.

CTDWAN for networking 2000 systems located in 200 offices/check posts.

Integrated with SMS gateway of NIC.

A control room, working 24X7, has been established.

The software development by an in-house team of NIC.

ENVIRONMENT BUILDING – WINNING OVER THE DEALERS

Interactive meets with trade bodies to introduce the concept.

Main selling point – dealers no longer required to come to tax offices and trucks would get instantaneous clearance at checkposts.

On ground success seen when different trade bodies started competing with each other to organize training programmes. Department just provided the resource personnel.

More than 5 lakhs + dealers educated

CAPACITY BUILDING – ENABLING THE OFFICERS AND OFFICIALS

All officers/officials imparted week long mandatory training on E-governance initiatives and basic Computer skills.

Administrative Training Institute and District Training Institutes used.

Training programme was completely hands on, with Trainers selected from the department.

6000+ officers and Officials trained

• Pilot of SUGAM• Pilot of e-CST• e-CST for all• CHECKPOST Computerisation-

• CTD-SWAN sanction

• Online delivery of e-CST

• Environment Building

2009 20112010 2012 2013

• e-payment• Addl. SUGAM wed-site

• SUGAM for all• Rules Amendment

• CTD-SWAN establishment

• e-returns• Capacity Building

• De-designing of Web-site

• Addl. SUGAM wed-site

•e-registration•m-Sugam•e-reconciliation

•e-Transit Pass•e-CAS•Capacity Building for Officials

•e-Clearance•Rights To Services

•Scope of SUGAM extended

•e-DCB•e-Grievance•e-enforcement•E-Return, e-pap

THE OUTCOMES - 1

Advantage Trade• Dealers no longer come to the offices. • About 1 lakh visits of traders saved

per day.• Zero scope for corruption.

Fast Track Transportation• Check posts became much more

friendly.• The delays at check posts were

reduced.

THE OUTCOMES - 2

Efficient Tax Administration• Tax administration has become more

efficient.• There was a marked increase in revenue

(cannot be ascribed to Sugam only).• The drudgery of officer has reduced and his/

her accountability has increased.

Environment friendly • Saves about one ton of paper per day.• Saves waiting time and fuel consumption at

check posts for transporters.

2009-10 2010-11 2011-12 2012-13 projected

05000

100001500020000250003000035000

1813322803

2761132000

Revenue Collections in ` crores

THE UNIQUE FEATURES – REASONS FOR SUCCESS

1• It was totally home grown.

2

• An excellent example of convergence of Government agencies and resources.

3• Complete Ownership and involvement of the organisations

4• Self-policing by trading community.

5• Robustness –no instance of system failure In last four years.

6

• Because of in-house team of NIC, managing the software, and updating software becomes hassle free.

7• This project represents a WIN-WIN-WIN situation.

Very Low0% Low

1%

Average19%

High 55%

Very High23%

Invalid response2%

Dealers - Overall Rating

Very Low0%

Low3%

Average31%

High 49%

Very High13%

Invalid response4%

Practitioners - Overall Rating

IMPACT ASSESSMENT OF E-GOVERNANCE INITIATIVES

BY ERNST AND YOUNG

REPLICABILITY

1• NIC is supporting North Eastern

States - Nagaland, Tripura and Mizoram to implement this model.

2• From 1 June, 2012, Bihar has

introduced a similar system called “SUVIDHA”.

3 • Andhra Pradesh has replicated this system.

4• Number of states have visited

and studied the system for replication – UP, Uttarakhand, Chhattisgarh, etc.

THE BIGGEST CHALLENGES

Change management was the biggest challenge.

We had to change a running system

During transition period both old and new system had to work concurrently putting enormous burden on the officers/official.

THANK YOU