Digital drive: Karnataka VAT receipts rose 26% in FY11 from 7% in previous 2 years

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New Delhi | Published: January 10, 2018 6:13:11 AM

If the Goods and Services Tax (GST) Council insists on electronic way (e-way) bill for moving goods above certain worth along certain distance despite a section of the industry calling it disruptive of trade and economic activity, it is not for nothing.

vat collection in karnataka, karnataka vat collection, tax collection in karnataka under gstThe ability of the system to boost tax collections is huge.

If the Goods and Services Tax (GST) Council insists on electronic way (e-way) bill for moving goods above certain worth along certain distance despite a section of the industry calling it disruptive of trade and economic activity, it is not for nothing. The ability of the system to boost tax collections is huge. Among the two states that had the e-way bill system running in the pre-GST regime, Karnataka has seen its VAT revenue growth almost quadruple after embracing it in 2010-11 as cross-matching of tax returns with the invoice values of merchandise transported became easier for the tax man (see chart). Though not as much as in Karnataka’s case, Bihar too achieved incremental growth in VAT receipts after ushering in a similar mechanism in June 2012. “Implementation of e-sugam (Karnataka’s version of e-way bill) not only curbed tax evasion but also forced many dealers and transporters, especially those involved in carrying iron ore and marble, to register on the VAT portal, thereby expanding the tax base,” a state government official told FE.

To ease the compliance burden of taxpayers at a time when the GST Network system and tax authorities themselves are grappling with the teething troubles of the switch-over to GST, the government had deferred e-way bill system and also allowed quarterly — rather than monthly — filing of sales invoices, but it has recently advanced the implementation of e-way bill on interstate transport of goods to February 1. Government managers have also expressed the hope that the system could boost GST revenue by some 20%.

Once the e-way bill is implemented, it would be mandatory for businesses to generate an online receipt on the GSTN portal — the IT backbone of GST — for movement of goods worth more than Rs 50,000 for distance over 10 km. This would ensure that neither the supplier nor the purchaser would find it easy to under-report transactions as the information on movement of goods would be available with the government, which can be tallied with tax returns filed by the firms concerned. In fact, the e-way bill designed for GST is almost a replica of the system that has been operational in Karnataka since 2010, with a few minor tweaks, the official quoted above said. From around 7% in both FY09 and FY10, the state’s VAT receipts growth jumped to over 26% in FY11 and on that high base, grew 23% in FY12.

Taking a cue from the southern state, Bihar too implemented the mechanism in June 2012. While Bihar’s VAT revenue collection had been growing at an average of 23% in FY11-FY12 period, it grew 29.5% in FY13 — the fiscal that captured the effect of e-way bill. “Although it was implemented primarily to ensure the businesses and transporters aren’t wasting time running around government offices, ground reports suggested that replacement of manual bill — which could be manipulated — with online receipts had brought down tax evasion,” a Bihar commercial tax official told FE.

However, tax professionals remain concerned about the ability of GSTN to function smoothly in the face of heavy traffic given its brief history of technical glitches and even system outage. GSTN struggled to cope with last-minute rush of taxpayers during the first two to three months. “In Karnataka, the government launched e-way bill applicable to only a few commodities to begin with and kept bringing items under the fold as the system matured. This ensured that there was no large-scale malfunction in the system,” Praveen MR, proprietor of the Bengaluru-based chartered accountant firm MR Praveen & Co said. He added he hoped national e-way bill would also be rolled out in a staggered manner to avoid confusion and delays.

Taxpayers’ struggle with GSTN woes and increased compliance had prompted the government to suspend many GST provisions that required interaction with the portal. In the meantime the council constituted a committee to work with Infosys, which has built the system, for resolving persistent issues. The suspended GST features like invoice-matching and e-way bill, both crucial for curbing tax evasion, have primarily been blamed for falling GST revenue. While the average GST mop-up was over Rs 90,000 crore for the first three months, it dipped to Rs 83,000 crore in October and sank further to Rs 80,000 crore in November.

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