Despite the shadow of uncertainty lurking over the rollout of the goods and services tax (GST), state governments have already embarked upon wide-ranging reforms to ensure a seamless rollout of the new indirect tax regime.
Several states have brought out amnesty schemes to shore up their tax revenues. The additional revenue garnered through such schemes would come in handy for bargaining with the centre for a higher compensation after GST implementation. Significant progress is also being made on creating the information technology infrastructure to ensure minimum disruptions during the transition.
Amnesty Schemes In their 2016-17 Budgets, Bharatiya Janata Party (BJP)-ruled states such as Gujarat, Maharashtra and Rajasthan as well as non-BJP ruled states like Bihar and Himachal Pradesh came out with amnesty schemes for cases related to value added tax (VAT), central sales tax and sales tax. Most of these amnesty schemes revolve around waiver of interest and penalty on payment of tax. West Bengal had also come out with an amnesty scheme for unregistered dealers to widen its tax base.
The rationale for such schemes is two-fold.
First, such schemes would help shore up state revenues. Tax experts point out that there is a huge pile-up of pending such cases in the states. “One to one-and-a-half times of annual tax collections of some of these states are stuck in litigation in various tribunals,” says Amit Kumar Sarkar, partner, Grant Thornton India.
According to one estimate, as many as 136,000 cases involving more than Rs 3 lakh crore relating to excise, service tax and customs are pending before various appellate authorities, including high courts and the Supreme Court as of February 2016. In Gujarat alone, according to government sources, tax cases worth around Rs 10,000 crore are currently under arbitration.
“This number would further increase if tax disputes of state VAT laws are also taken into account,” says Pritam Mahure, a Pune-based chartered accountant, who organises training sessions for state tax officials on GST.
A senior government official from Gujarat told Business Standard that the idea of the amnesty scheme was to optimise revenue, reduce litigation and its costs. “At least some money could come in through the scheme instead of being deferred through litigation.” These amnesty schemes would, thus, help shore up state revenues as well as reduce pending litigation.
Take the case of Maharashtra. The ‘all-carrot’ amnesty policy targets 120,000 merchants and traders who would now have to own up to previous undeclared earning, and unpaid tax, while avoiding penalties and interest on tax dues. According to documents from the state finance department, tax revenues raised but not realised amount to Rs 48,668 crore. Of this, Rs 32,969 crore in sales tax revenue has not been realised. Amount currently under dispute is to the tune of Rs 16,193 crore (raised before March 31, 2012). The state government hopes to recover some part of the disputed amount through the amnesty schemes, say officials.
CLEARING THE BACKLOG BEFORE GST Gujarat Amnesty scheme introduced for tax dues up to December 31, 2015, under the Sales Tax Act, Value Added Tax Act, and Central Sales Tax Act In tax evasion cases, the state offers to waive off 75% penalty on payment of tax In other pending cases, the state proposes complete waiver of interest and penalty on payment of tax
Introduced an amnesty scheme to unlock revenue in appeals pending before courts from 2005 onwards, up till March 2012 Scheme can be availed from April 1, 2016 to Sept 30, 2016 Amnesty not available for tax dues, but only against interest and penalty
Working on early disposal of department VAT assessments and appeal Re-structuring of commercial tax department is in the works
Time period of amnesty scheme under VAT has been extended Himachal Pradesh Interest and penalty proposed to be waived off to settle assessment cases prior to 2011 related to want of statutory forms Bihar To announce amnesty scheme to reduce pending litigation cases
Second, any increase in state revenues from indirect taxes ahead of the GST rollout would also raise the states’ bargaining power while negotiating with the Centre for a higher compensation against potential revenue losses from migrating to the GST regime. Tax experts Business Standard spoke to concur. “The amnesty schemes clear the deck for rollout of GST,” says Sarkar. “It is a measured gamble by the states to improve their tax collection.”
Officials, however, argue that there is a need for more clarity on how compensation to states for loss of revenue will be calculated. “We would not like to say this has been done to improve the bargaining position under the GST regime,” says an official.
Tax experts also point out that clearing backlog of cases would also free up officials to focus on transitional issues associated with the rollout of GST. “If the pending cases of the current tax regime are resolved before the GST is made effective, the government machinery could shift its focus to implement a robust GST regime and address its transitional challenges,” says Mahure.
Infrastructure Many states have also made significant headway in putting in place the IT infrastructure for the expected transition to the GST regime. States are in the process of upgrading their commercial tax departments, training tax officials, and modernising their IT systems.
In Gujarat, for instance, the tax department has started cleaning up data related to PAN card holding dealers. Validated PAN would be required when states move to the GST network. Gujarat has validated around 489,000 PAN holders till date, say tax officials.
Maharashtra Finance Minister Sudhir Mungantiwar says currently, 100 master trainers are being trained in the state. These officials would further train about 5,000 officers and inspectors of the sales tax (VAT) department. There are about 800,000 dealers in Maharashtra. State tax officials have already vetted PAN card details of the dealers.
In West Bengal, the tax department has been working on integrating its IT software with the Goods and Services Tax Network (GSTN), the IT backbone connecting all state governments, businesses, banks and other stakeholders on a real-time basis, says a senior official of the state’s IT department.
The GST portal will act as a front-end system for trade and industry and back-end for all government agencies. The portal will ensure technology support for registration, return filing, tax payment, and settlement of dues, for all stakeholders.
Southern states such as Tamil Nadu and Karnataka already have fairly robust IT-based tax infrastructure system. “We are ready with the infrastructure. We are continuously training our people. Once the GSTN software is ready, our training would intensify,” says Ritwik Pandey, commissioner of commercial taxes, Karnataka.
However, IT experts contend that they need to consider standards that will be applicable on a national scale. “One of the main tasks would be to ensure data synchronisation, because states pursue different formats to feed tax data,” says a tax official from Tamil Nadu.
Officials say that the preparation for GST at the state-level will gather momentum once the constitutional amendment pertaining to GST is made. “The training efforts will intensify once the GSTN software is functional,” says Pandey.