Indirect Tax Reform
Initiatives
Letter
from Dr.JP : 
Dear
friends,
You
may recall the initiative of the Central Vigilence Commission
for improving procedures in indirect taxes administration.
Lok Satta hosted two successful workshops in Mumbai and Hyderabad
in 2005 with CVC, CBEC, Industry, experts and civil society
representatives. Precise and actionable recommendations emerged
from these workshops. Sri P Shankar, the Chief Vigilence Commissioner,
now sent us a report of CBEC indicating the action taken on
these reform proposals.
Please
read my reply to CVC and the table indicating the action taken.
Both are self-explanatory.
These
documents can be accessed from below:
With
warm regards,
Jayaprakash
Narayan
Procedural
Improvements in Indirect Taxes
Good
for the goose, good for the gander
First-of-its-kind initiative for reforming indirect taxes
holds promise for both government and the industry
| Small
and medium enterprises are subjected to enormous harassment
and extortion in the name of tax administration. Vast
amounts of time and energy is wasted dealing with such
problems, which invariably affects production, productivity
and competitivenes s. Improvement of tax administration
alone could boost the economic growth rate of India by
about one percent per annum. This is why VOTEINDIA has
launched the nation-wide campaign for Procedural Improvements
in Indirect Taxes, under the banner 'Plucking feathers
without hissing', in the spirit of Jean Colbert. |
|
Formally
launched in Hyderabad and Mumbai in June 2005, this campaign
for bringing transparent and industry-friendly reforms
in 'Central Excise and Customs' has been taken up in collaboration
with the Central Vigilance Commission (CVC) and the Central
Board of Excise and Customs (CBEC). The campaign will
endeavour to simplify taxation procedures, reduce arbitrariness
and unbridled discretion in order to minimize corruption,
while enhancing the effectiveness of the Customs and Central
Excise departments. Chief Vigilance Commissioner P. Shankar,
who inaugurated the event, encouraged the participants
to make full use of this unique opportunity to generate
worthwhile solutions to the existing challenges in indirect
taxation procedures.
The workshops witnessed open and cordial deliberations
between the industry and the CBEC officials, with participation
from taxation experts and the civil society. These deliberations
saw the evolution of genuine consensus among participants
and a 'can-do' sense of optimism among the CBEC officials,
on key proposals and reform measures specific to streamlining
the CBEC organization and structure, enhancing accountability,
and simplifying excise and customs procedures. Lok Satta
had drafted these recommendations on CVC's suggestion.
Once implemented, these recommendations would result in
simple and transparent procedures, improved trust between
department and industry, encouragement for voluntary compliance,
improved accountability and reduced litigation, better
service quality to the industry while enhancing the position
and image of the department. The CBEC has already taken
tangible steps in this direction. |
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Reforming
procedures in tax administration is an extremely complex
task, even in the best of circumstances. But when these
taxes are the biggest revenue earners for the government,
such a reform becomes all the more difficult. But any
such reforms would, greatly benefit the industry too.
For when it comes to reforming procedures in indirect
taxes, what's good for the goose is most certainly good
for the gander. |
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Indirect
Taxes: A Primer
- Broadly
speaking, taxes are of two kinds: direct and indirect.
Direct taxes are levied on the incomes of individuals
and corporations. Salaried employees and entrepreneurs,
are familiar with income and corporate taxes, which
constitute most of the direct taxes collected by the
union government. Indirect taxes are levied on goods
and services and are mostly made up of excise and
customs duties, sales tax or VAT.
- Of
the total tax received by the union government, around
62% comes from indirect taxes and the rest from direct
taxes (Source: Reserve Bank of India). Until the advent
of economic liberalization, this figure used to be
well over 70-75%.
- Until
the nineties, our country used to have a highly irrational
and even counterproductive direct taxation system.
Under this system, the tax rates were very high and
not surprisingly, tax evasion too was staggeringly
high. But, over the past fifteen years, the tax rates
have been rationalized and tax laws and procedures
have been simplified to significant extent. This resulted
in better compliance and a consistent increase in
the direct taxes collected by the Indian Union
- Though
a similar effort has been made to reform the indirect
taxation tariff structure, full benefits are not realized
because procedural bottlenecks and excessive discretion
still remain. These difficulties create a sense of
harassment among the industries. They also adversely
affect the competitiveness of our industry in the
global market and thereby, affecting economic and
job growth in our country. Indirect taxation procedural
bull has not been grabbed by its horns. Not until
now, at least.
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