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 DEPARTMENT
BACKBONE OF STATE’S FINANCES BUT:
Outdated systems lead to pilferage and corruption.
Cost of compliance very heavy for tax payers – permissions,
frequent visits, harassment
Paper based systems unable to cope with high volumes.
Emphasis on regulatory role and policing
Bogged down by routine work – no attention to analysis
High pilferage
More
physical
controls
More
corruption
Higher cost of
compliance and
discretion
‘PROJECT TRANSFORMATION’
Department as
regulator
Department as a
service provider
Frequent visits by
dealers
All services at
doorsteps
Policing by
Department
Self Policing by
Dealers
Paper based
information
Everything is
electronic
Old paradigm – Post
event confirmation
New paradigm - Pre
event confirmation
Indifference of citizens
Involvement of
citizens
THE FOUR PILLARS
E - VARDAN
E - VARADI
E - GRIEVANCE
E - PAYMENT
E - SUGAM
Services at
A new
doorsteps
Paradigm
E - CST
E - SUVEGA
M - SUGAM
Project
Transformation
E-reconcile
Transparency
and
Accountability
Policing
by Citizens
Comprehensive
Assessment
E-enforcement
System
system
E - GRAHAK
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 SHIFT
THE 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
4
5
6
• Tremendous discretion for checkpost officer.
• Long waiting time for transporters at checkpost
• Collected documents would sometimes be sold back.
• 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.
Citizens makes Complaints through SMS
Commercial
Taxes Web-site
1 Citizen sends
SMS Complaint
Action details to
6
Citizen
2 Control Room verifies &
contacts Citizen
3 Informs the mobile
officer
4
Mobile officer
gets SMS
5 Mobile Officer
inspects the
shop
HOW IT WAS ACHIEVED
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 inhouse 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 Egovernance 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
• 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
2010
•e-registration
•m-Sugam
•e-reconciliation
•e-Transit Pass
•e-CAS
•Capacity Building
for Officials
2011
•e-Clearance
•Rights To Services
•Scope of SUGAM
extended
•e-DCB
•e-Grievance
•e-enforcement
•E-Return, e-pap
2012
2013
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
Revenue Collections in `
crores
40000
30000
18133
22803
27611
32000
20000
10000
0
2009-10 2010-11 2011-12 2012-13
projected
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.
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.
IMPACT ASSESSMENT OF E-GOVERNANCE INITIATIVES
BY ERNST AND YOUNG
Dealers - Overall Rating
Invalid response
2%
Very Low
0% Low
1%
Average
19%
Very High
23%
High
55%
Practitioners - Overall Rating
Invalid response
4%
Very Low
0%
Low
3%
Very High
13%
Average
31%
High
49%
REPLICABILITY
• NIC is supporting North Eastern States Nagaland, Tripura and Mizoram to implement
this model.
• From 1 June, 2012, Bihar has introduced a similar
system called “SUVIDHA”.
• Andhra Pradesh has replicated this system.
• 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