VAT Augmentation Measures
In 2015, the Dialogue & Development Commission (DDC) of Delhi was requested to provide recommendations to increase the growth rate of revenues from Value Added Tax (VAT). Through extensive consultations with tax information systems experts and comparative analysis of state benchmarking, DDC recommended several steps based on empirical evidence for implementation to increase the VAT growth rate by double digits.
- DDC strongly recommended replacing the SMS-based DS-II system with web-based DS-II to be made mandatory upon or before the entry of goods in Delhi at least till SMS based system was designed. The State of Gujarat was suggested as the benchmark for the SMS-based system which ensured that once the SMS was sent, the information contained in the SMS could neither be deleted nor edited in any manner. The information in the SMS was automatically uploaded to the web portal, from where it was posted to the relevant dealer profile including the purchase ledger. The change was suggested as the existing SMS-based DS-II system was prone to gross misuse by unscrupulous dealers, particularly the provision that allowed uploading DS-II on the web portal within 48 hours after the entry of goods in Delhi. As the dealer could argue that his/ her mobile was misplaced or given to someone else and thus, hadn't sent the said SMS. Also, 48 hours was a long period in which the goods could be transported many times over on the basis of the same SMS, particularly from nearby states.
- As per the state comparative analysis by DDC, Tamil Nadu and Gujarat State Agencies did not issue road permits or any other relevant statutory forms to a newly registered dealer with no history of return filing or tax payment. It required the mandatory approval of the authorised officer through a web portal sign-up module. These in-built checks and balances would ensure that no one dealer could damage the tax revenues without the authorisation of the concerned VAT officer.
- DS-II issued from the web portal should be mandatory at the time of the entry of goods in Delhi so that the companies/firms which made account sales alone would not be able to dispatch goods for sale in Delhi without insisting on a DS-II from the purchaser. Once DS-II issued from the web portal would be made mandatory, such companies would not be able to dispatch goods from their factory gate without the necessary road permit.
- DS-II should contain information related to the purpose of interstate purchase to aid in determining the tax liability of the dealer. DS-II need not indicate different purposes but the purpose column should have a drop-down list. Based on the purpose and tax liability thereto the system/officer incharge should take a decision on enabling/ disabling the issuance of DS-ll.
- SUGAM reports, Dealer profiles etc. should be made accessible through the internet on web portals for 24x7 viewing and monitoring. The information available on the web portal should be for viewing only and not for any modification/deletion. The web portal would require a foolproof firewall to ensure that the data would not be corrupted. The dealer profile on the internet should also contain all relevant information about the dealer pertaining to registration, tax payment, 43 84 return filing, issuance of SUGAM/C-form, purchase and sales ledger along with match mismatch report.
- Necessary checks and balances related to the issuance of C-form should be introduced in the system. Bihar's system of checkpoints should be used as a frame of reference in which the C form can be downloaded after 3 days from the requisition date once it was approved by the officer incharge from their login, subject to the condition that the total tax paid was greater than or equal to 75% of the total tax payable in the last four quarters and 100% tax payable in the fifth quarter preceding the quarter for which statutory form is requested. Moreover, if the necessary conditions were not met, C-form should be issued only after the incharge was satisfied with the reasons responsible for the deviation. The incharge may undertake physical stock verification too if necessary. This inherent system of checks and balances would prevent large-scale evasion of taxes by unscrupulous dealers.
- TDS should be extended to all kinds of supplies and the TDS on the works contract should be increased from 4% to 5% so that it is at par with other states.
- Like other states, the RNR VAT rate should be increased from 12.5% to 13.5% in Delhi also. Through state comparative analysis, DDC identified that during the financial year 2014 - 15, collections from IMFL and other alcoholic beverages were ₹607 and ₹1050 crores in Delhi and Bihar respectively. Therefore, it was recommended that the VAT rate on IMFL and cigarettes should be increased from 20% to 30%, which was the maximum permissible VAT rate in Delhi.