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Indirect Tax Reforms 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.
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.
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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