G2B e-Governance Initiative in:
KARNATKA VALUE ADDED TAX
E-Governance Initiative in Commercial
Taxes Department, Karnataka
 The Commercial Taxes Department (CTD)
administers the VAT scheme in Karnataka
 Millions of Commercial Tax transactions occur
daily
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Registration of Dealers,
acceptance of returns and tax,
issue of statutory forms,
re-assessment of cases,
vigilance,
check post operations
Traditional System
 Tax payers need to physically go to the offices
to
 Register
 File returns every month
 Remit taxes
 Obtain C forms, F forms, Delivery notes etc
 Bulky paper documentation – impossible to
evaluate
 Lacked transparency
Web-enabled System - EFS
 Interaction with dealers is through internet
 Challenges
 Internal processes, laws and rules were to be
modified
 Installation of a robust hardware system across
the state
 Capacity building:
 Within the CTD
 Dealer education and training
EFS contd.
 Timely delivery of services mandatory
 All services under CTD brought under Karnataka
Guarantee of Services to Citizens Act
 Default in delivery of service attracts monetary
penalty on the officer responsible
Schemes under EFS
 E-Sugam: (Simple Uploading of Goods Arrival and
Movement) – for issue of delivery notes
 Dealers can upload details of bulk transactions to a central server
 Automatic acknowledgment with a unique number
 Unique number to be used as proof in goods vehicle
 E-Suvega: (Simply Upload about the VEhicle and Go
Across) – for check post operations
 When commodities are transported through Karnataka,
transporters obtain a transit pass at the entry check post and
submit it at the exit checkpost
 If a TP is not surrendered at the exit checkpost within the
stipulated time, entire tax on the goods become liable
 Watching issued TPs for surrender was ineffective in the manual
regime. This has become automatic under e-Suvega
Schemes under EFS contd.
 E-Varadan: VAT Registration and
Documentation access through the Internet
 Application is filled online and uploaded along
with supporting documents
 Date of inspection is fixed and communicated
 After inspection and approval, registration
certificate can be downloaded and printed by the
dealer
Schemes under EFS contd.
 E-Varadi: VAT Return and Data through
Internet
 Dealers are given unique user name and pass word
 They can log in and file their returns online
 Dept. can capture vital data at the primary source
 Further processing is made easy
Schemes under EFS contd.
 E-Payment of taxes
 Remittance of taxes through net banking
 Eliminated the hassle of cheque clearing
 Automatic reconciliation is effected through
partnership with the Reserve Bank and Treasury
 E-Grahak: (Guaranteed Response Against
Hidden Activities of tax evasion in Karnataka)
 Policing by citizens
 Citizen can give complaint against a dealer by sending
SMS to a designated number
 The complaint is registered, followed up and results
are made available to the public
Schemes under EFS contd.
 Online Issue of Statutory forms (C, F, E1, E2
etc.)
 Interstate sales between registered dealers attract
concessional rate of tax
 Purchasing dealer obtains a C form from the
department and gives it to his seller to file in his
VAT office
 Under the scheme these forms can be applied for
online, scrutinized and cleared immediately
Schemes under EFS contd.
 E-CAS: (Comprehensive Assessment System)
to strengthen internal accountability
 To increase accountability among assessment
officers
 Requires online submission of assessment orders
 Automatically send for peer review to another
officer – comments are made available to all
officers
 Appeal orders linked to the assessment order – file
tracking made easier
Schemes under EFS contd.
 E-Grievance
 Registered dealer can submit grievances online
 The addressed officer updates responses online
 Can be monitored by supervising officers
Outcomes
 Number of dealers visiting offices reduced from
30000 to 1000 per day
 Revenue growth rate of about 22% in 2011-12
 Environment friendly – saving atleast 3 tons of
paper per day
 Average waiting time reduced from 7 minutes to
1 minute
 Increased transparency and accountability
 Reduction in corrupt practices
 Effective and efficient service delivery
Recognition
 The initiative was conferred Prime Minister’s
Award for Excellence in Public Administration
for 2011-12
 E-Checkpost project was awarded “National
e-Governance Award 2012, Gold” in the
category of ‘Excellence in Government
Process Re-engineering’
IS AUDIT OF EFS
Included in the Revenue Report of the year ending 31 March
2013
Observations…
 Excess Representation of Tax Paid in Original
Returns
 Adjustment of Interest
– 1.98 crore
 Adjustment of other payments – 93.43 crore
 Inadequate Input Controls to Prevent Excess
Brought Forward
 Revenue Loss of about 13.3 crore
Observations – e-Varadi
 Absence of provision to levy penalty for
understatement of tax liability in original
return
 If tax liability is increased by more than 5% in a
revised return, penalty is leviable at 10% of the
hype
 Tax effect: 30.12 crore
 Excess Tax Collected by Dealers
 No control to levy excess tax collected by dealers
Observations – e-Varadi
 No control in the system to revert a composition
dealer when his yearly turnover exceeds 15 lakh
 Hoteliers opting for composition are liable to pay
tax at 4%. Lack of control to ensure this resulted
in payment at 1% (69 lakh)
 Metal Crushing Units opting for composition
should pay tax on the number of machines – no
question of nil returns. System had no control to
ensure this
Observations – e-Varadi
 Contractors can claim deduction on
subcontractor turnover if the subcontractors
are registered under the Act and pay taxes
 The system has no control to validate
subcontractor exceptions against the
turnovers declared by the subcontractors in
their returns
Observations – e-Varadi
 System does not ensure returns filed for all
periods – missing returns
 Returns of subsequent periods are accepted
without prompting for the missing period
 System has no control to prevent input tax
credit on purchases made from composition
dealers
Observations – e-Payment
 System has no provision to compute interest
on belated payment of tax (1.65 crore)
 5 cases of deemed acknowledgement for part
payment of tax through e-payment
 1264 cases of under payment of taxes
Observations – e-CST Forms
The system lacked controls to ensure that
 Filing of forms corresponds to the CST sales turnovers
declared in the returns.
 CST Invoices adequately cover the value of individual
forms
 Invoices are not repeated for different forms
 CST and KTEG modules are not integrated
compromising efficiency
 When dealers apply for C forms for purchase of KTEG
liable commodities, the system should watch
declaration of the same in KTEG returns.
Observations – e-Sugam
 To prevent misuse of delivery notes, the CTD
has established limitations on validity period
based on distance between origin and
destination
 The dealer, while requesting for a delivery
note, has to specify his date of delivery.
 The validity period limitation is not mapped
into the system to limit the delivery date
 Many notes have been inspected and cleared
beyond the validity period
Observations – e-Grahak
 Lack of continuous effort through repeated
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advertisements.
Absence of website optimization efforts – the facility
does not present itself to related web searches
Unless a citizen knows the exact term ‘e-grahak’ and
what the service provides, it is unlikely to be used to its
full pontential.
The facility is underutilized by the public - only 435
requests from the citizens during the period
CTD attended to 112 cases after a delay of more than a
month, and 63 cases after two months
ADVANTAGES OF POSSIBLE
INTEGRATIONS…
Income Tax
 Possible under declaration of income might
be forthcoming from the returns filed under
VAT
 Purchase invoices, delivery notes of dealers
give indirect indication of transactions
Central Excise
 PAN of dealers are captured in VAT EFS –
offering possibility of linkage
 Central Excise is levied on the ‘clearance’
from factory gate by way of sale etc.
 VAT EFS offers the possibility for indirect
validation of sales of a dealer from the
purchase invoices of his buyers
Service Tax
 Registration database of VAT might bring to
light unregistered dealers liable to register
under Service Tax
 For services including works contract and out
door catering, service tax is levied after
exempting the turnover relatable to material
transfer.
 Validation of the same can be achieved
through integration with VAT returns of the
corresponding dealers.
Service Tax contd.
 For services where an element of material
transfer is inseparable, percentage
abatement is granted under service tax.
 Rationality of such percentage abatement
might be forthcoming through an integration
with the VAT system
Goods and Services Tax
 Under the proposed GST scheme, the tax
base will extend to all goods and services
 No distinction will be made between goods
and services
 Will subsume many Central and State Taxes
Taxes proposed to be subsumed in
GST
 Central
 Central excise
 Service tax
 Additional Customs Duty
 Surcharges and cesses
 State
 VAT
 Entry Taxes
 Entertainment Tax, Luxury Tax, betting tax etc.
GST preparedness
 The proposed GST is consumption based – the
final consumption is taxed
 Destination principle is recommended – GST
to be imposed on value addition of all taxable
goods consumed domestically (imports are
taxed and exports are zero rated)
 Credit method of computation – amount of
tax levied is explicitly stated in the invoices,
hence more transparent and easy to
administer
GST Preparedness
 Destination principle, consumption base and
credit method are akin to the VAT system
currently followed
 VAT computerization is also modeled along
these lines
 Other state levies like ET, LT, BT are also
managed through a computerized system
fully integrated with the VAT system
 Hence present system is in tune with the
proposed structure of GST