INDIRECT TAXES IN INDIA UNION & STATES

CTRPF: 13.08.2013 INDIRECT TAXES IN INDIA UNION & STATES Sri RajsekharBandyopadhyay Senior Joint Commissioner, Commercial Taxes West Bengal

Constitutional Aspects of Taxation by the Union and States • Q4 2007 Highlights • Sustaining Competitive Advantage • Management Outlook • Appendices • Financial arrangements under constitution -- • Distribution of taxation heads (Articles 246 248 and 265 read with the Lists I and II) • and • Distribution of revenues and sharing of resources between the Union and the States (Chapters I & II of Part XII of the Constitution). Contact : rajsekhar.wb@gmail.com

Financial Relations between the Union and the States • Distribution of Revenues Contact : rajsekhar.wb@gmail.com

Financial Relations between the Union and the States • Distribution of taxation powers • Separate heads of taxation for the Union and the States are provided in Lists I and II. • No tax can be levied unless it is related to a specific head of taxation in List I or List II. • There is no head of taxation in the Concurrent List (Union and the States have no concurrent power of taxation). • Taxation powers of union & states are mutually exclusive. Contact : rajsekhar.wb@gmail.com

Financial Relations between the Union and the States • Distribution of taxation powers • Fourteen taxation heads in Entries 82 to 92C in the Union List. • Nineteen taxation items in Entries 45 to 63 of the State List. • Residuary power of taxation vests in the Union – Entry 97 of Union List. Contact : rajsekhar.wb@gmail.com

Financial Relations between the Union and the States • Broad Principle of Allocation of Taxation Heads • Taxes which are location-specific and subjects of local consumption – assigned to the States. • Taxes which are of inter-State significance and where the tax-payer can gain or evade tax by shifting his habitat or where the place of residence is not a correct guide to the true incidence of tax – assigned to the Union. Contact : rajsekhar.wb@gmail.com

Financial Relations between the Union and the States Some Major Central & State Taxes Tax on sale of goods AND Contact : rajsekhar.wb@gmail.com

Indirect Taxes : Union and the States • The present state of coordination and conflict in the context of indirect taxes -- • Income Tax and VAT/Sales Tax • Central Excise Duty and VAT/Sales Tax • Customs Duty and VAT/Sales Tax • Service Tax and VAT/Sales Tax • Other Taxes by the State Contact : rajsekhar.wb@gmail.com

Taxation : Union and the States Contact : rajsekhar.wb@gmail.com

VAT vis-à-vis SERVICE TAX Building Contracts (WCT) Turnkey Projects (WCT) Composite Contracts Hiring Contracts (RTU) • Erection / • Installation • Auth. Serv. • Station • Repair • Photography • Bus.Auxil. • Mandap • Caterers • Event Mgt. • Convention • Rent-a-Cab • Intellectual • Property Composite contracts -- contracts, other than works contracts, comprising supply of goods and provision of services Turnkey (A contract for) a job in which the contractor is to complete the entire operation, leaving the building, a plant etc. ready for use – designed and ready for immediate use by the contractee Works Contractors Build-ers • Complex • Construct • Commer. / • Indl. Const.

Taxation by the Union and the States SERVICE TAX OR VAT ? Contact : rajsekhar.wb@gmail.com

Change in Service Tax w.e.f. 01.04.2012-- Contact : rajsekhar.wb@gmail.com

Taxation : Union and the States TAX REVENUE UNION & STATE GOVERNMENTS TRENDS ……. Contact : rajsekhar.wb@gmail.com

India’s Tax Revenue - Comparative Status Source : Index of Economic Freedom, Heritage Foundation, 2012 Contact : rajsekhar.wb@gmail.com

BREAK-UP OF TOTAL UNION TAXES SHARE OF TAXES 2011-12 SHARE OF TAXES 2001-02 2% 11% 20% 17% 37% 39% 17% 17% 18% 22% Contact : rajsekhar.wb@gmail.com

India’s Tax Revenue Contact : rajsekhar.wb@gmail.com

Contact : rajsekhar.wb@gmail.com

Direct Taxes Trend Contact : rajsekhar.wb@gmail.com

Union and the States : States Growing Faster Contact : rajsekhar.wb@gmail.com

Service Tax - New Tax Source for the States ? NEGATIVE LIST OF SERVICES - ANY SIGNIFICANT CHANGE IN 2012-13 ? 132,498 35.9 ALL SERVICES , OTHER THAN THOSE IN NEGATIVE LIST, MADE TAXABLE Contact : rajsekhar.wb@gmail.com

Indirect Taxes : Union and the States • Scope for improved coordination and tax implication • 360° profiling • IT oriented synchronisation • IT and Data Architecture - synchronisation and mismatch Contact : rajsekhar.wb@gmail.com

Taxation : Union and the States Whether sharing should be discretionary or compulsory – IT driven mechanism Profession Tax slab linked to turnover of business – checking with VAT returns Motor Vehicles Data – checking for vehicle information – checking of vehicle registration data with the sale data reported by dealers Contact : rajsekhar.wb@gmail.com

Revenue Administration Indicators of Effectiveness • Qualitative Indicators • Perception of taxpayers regarding: • Risk of detection of non-compliance and severity of consequences. • Quality of assistance provided by the Administration to enable taxpayers to comply with legal obligations. • Effectiveness of the RA in resolving taxpayer problems. • Public perception regarding the degree of corruption in the RA. • RA morale and self-image. Contact : rajsekhar.wb@gmail.com

Revenue Administration : Indicators of Efficiency • Quantitative Indicators: • Average number of days taken to identify and notify Non-filers & Non-payment or underpayment of declared tax liabilities. • Number of taxpayers/ Number of employees. • Administrative Costs/ Total Revenue Collected. • Direct and indirect compliance costs incurred by taxpayers including: • Legal advice to understand and interpret the tax laws. • Preparation and filing of declarations. • Payment of taxes. • Representation before the RA in audit proceedings. • Filing of objections and appeals against assessments. • Getting refund of excess taxes paid. • Meeting information requirements of the RA (sales and purchase data, information regarding transactions with third parties etc.). • Attending to field operations (survey, search and seizure operations, checking of issue of VAT invoices, inspection of goods etc.). • Withholding taxes collected on behalf of the Revenue Administration. Contact : rajsekhar.wb@gmail.com

REVENUE ADMINISTRATION Contact : rajsekhar.wb@gmail.com

EFFECTIVE COORDINATION & SYNERGY Contact : rajsekhar.wb@gmail.com

Indirect Taxes : Union and the States • Appropriate Tax Policy Reform to harness the beneficial effects of synergy • Implications for GST • Applicability even before introduction of GST Contact : rajsekhar.wb@gmail.com

Scope for gst About some aspects of IT system :-- • Problems in our current IT systems • Desired form of the IT system • What IT system should do for us

1. Problems in current IT systems • Different States are at different levels of computerisation • Even where there is some degree of computerisation, there is much scope of improvement in IT oriented functioning • There are problems in IT infrastructure -- Hardware, Software, Connectivity (within the tax department itself and with dealers)

Current problems in IT -- continued • Secondary data, i.e. manual entry of data – inherently error-prone • Partial capture of data – not amenable to computer oriented work-flow • Lack of extensive interface with other departments within the same State Govt – MVD / RTO, Treasury etc • Only Partial data-sharing with other States through TINXYS • No interface with other tax departments – Income Tax, Central Excise etc

Current problems in IT -- continued • Software – not aligned to changing needs – time lag in updation / upgradation • Lower level of IT skills among the Staff • Poor responsiveness to the dealers’ needs

2. Desired form of IT system • Extensive IT coverage within each State • Similarity throughout India – software, interface, data structure, processes • Integrated sub-modules as per individual State’s requirements • Work-flow through IT and not simply digitisation of data • Interactive databases – with that of the other State & Central taxation departments

Desired form of IT system -- continued • Facility to the Authorised Officers to Log-in to department’s IT system even from outside the system – similar to “work-from-home” • IT to be the servant – not the master

Existing Indirect Tax System RBI/ Banks (Payments) CBDT (PAN Verification) Tax Administration Tax Payer Interface Centre Department Offices CUSTOMS CEN. EXCISE SERVICE TAX E-Services States VAT Facilitation Centre OTHER TAXES CAG (Audit & Accounting) CGA/SAG (Accounting) • The present systems at Centre and States do not share data. • Limited sharing amongst States through TINXSYS

GST Common Portal RBI / Banks (Payments) CBDT (PAN Verification) Tax Payer Interface Tax Administration Centre Facilitation Centre Customs GST PORTAL CGST IGST State A SGST E-Services State B SGST CAG (Audit & Accounting) CGA/SAG (Accounting) • Proposed common GST Portal – To act as common interface, will provide core services of Registration, Returns & Payments, Accounting of taxes

ACTIVE INTERFACE WITH IT SYSTEMS MAY BE USED EVEN I N VAT Centre CUSTOMS INCOME TAX ROC State A State B SGST SGST GST PORTAL STATE IT SYSTEM SHOULD AUTOMATICALLY DISPLAY SOME REQUIRED INFORMATION FROM I TAX/CUSTOMS ETC. IN REAL TIME

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INDIRECT TAXES IN INDIA UNION & STATES