Fear of excessive scrutiny of transactions has kept corporate India away from signing up for the single-window payment facility for all central taxes, called large taxpayer units (LTUs), despite benefits such as quicker tax refunds.
With less than 200 businesses registered under LTUs in the four metros, the first of which came up in Bangalore eight years ago, the scheme announced by finance minister P Chidambaram in 2005 has virtually become a non-starter. The scheme, which is optional, offered businesses the facility of duty-free movement of goods across different units, transfer of duty credit among them and time-bound tax refunds and dispute settlement.
The finance ministry is now considering changes to the scheme. ?The government had appointed an expert committee under DRI additional director John Joseph for feedback from the industry and to make recommendations to improve the LTU scheme. The two reports submitted by the committee are under consideration,? said an official.
?LTUs have many advantages, including quicker refunds. But if you look at the tax environment, you would see it is very aggressive. Companies fear that if they submit to an LTU, there is the possibility that they may be scrutinized more than they are subjected to now,? said a leading tax expert.
Both direct and indirect tax authorities work closely together and exchange information under an LTU, leading to more questions for the tax payer to answer, said an industry executive. He said such close co-operation exists in the normal course of tax collection only on a ?need-to-know basis.?
Also, there is the fear of higher level of litigation if assessed at an LTU, said an industry executive. Companies such as Reliance Industries, Asian Paints, Cognizant Technology Solutions India and Toyota Kirloskar Motors assessed at different LTUs had some tax disputes that were later settled in respective High Courts, whereas one case involving Amara Raja Batteries was settled in the Supreme Court. Bosch, IBM India, Canara Bank, HP India Sales, Vijaya Bank, State Bank of Mysore, ABB, Volvo India are some of the companies making use of the LTU scheme.
India?s Tax Administrative Reforms Commission chairman Parthasarathi Shome, however, does not feel such fears should deter companies from benefiting from an LTU.
?This is the practice in most other countries. Large companies in India having operations in other countries invariably get their direct and indirect tax matters administered by the authorities there in a combined manner. I do not see why businesses should fear it at all,? explained Shome. Shome is expected to make a series of recommendations on revamping how India administers its tax policy. ?Why should a taxpayer fear scrutiny if everything is clean?,? asks an official with the LTU, Delhi.
There is a view among industry executives that although policy makers and heads of tax departments are very much in favour of LTUs, some junior officials may not be too enthusiastic to promote them. Each tax authority has its own targets. If a taxpayer moves away from its jurisdiction to an LTU located elsewhere, it means loss of revenue for that jurisdiction.
Some fear that litigation in the case of companies assessed at LTUs are more than that of the rest, although no statistics is available to prove this. They also say there is no substantial benefit from LTUs, although duty credit sharing is available among manufacturing units.
A few logistics issues, some of them company specific, too, have discouraged businesses from choosing the LTU option.
It may not be an attractive proposition for a company registered with an LTU in Delhi and having a plant in Tamil Nadu to require the person in charge of the plant to have a regular interface with a tax official in Delhi. Secondly, if a company follows a decentralised tax compliance system, it may not want to take on the additional burden of a centralized tax compliance structure.
Experts, however, agree that LTUs do have benefits. ?I would agree that LTUs have tremendous potential and huge benefits because all return filing and compliance requirement are centralized. A single-window tax administration spares the trouble of meeting multiple compliance requirement with different tax authorities,? said Saloni Roy, senior director with Deloitte in India. She said the choice of signing up for an LTU should be left optional to taxpayers.
Bipin Sapra, Tax Partner, EY, is of the view that some much-needed procedural incentives could make LTUs more attractive to businesses. ?A lot of taxpayers have liability under one class of tax and a refund due under another. For example, an exporter may have an income tax liability, but a huge service tax refund pending. If taxpayers are allowed to adjust liabilities and refunds under different taxes against one another, then a lot of companies would like to take that advantage under an LTU,? said Sapra.
Sunil Jain, Partner, JSA, said that as a concept, LTUs have many advantages and are beneficial for both the taxpayers and the department. LTUs’ potential, however, needs to be tapped efficiently to improve upon the mixed experience of the large taxpayers.
?They face a number of problems. Training and skill management of the LTU personnel, lack of client-service approach, lack of effective and informed client executive allocation to the large taxpayers, inadequate internal structure of the tax department in relation to LTUs are some of the problems,? said Jain. At present, companies paying Rs five crore of excise or service tax or Rs 10 crore of advance tax are eligible to register with an LTU.