VAT 99-2/final - empcom.gov.in

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Vol. 10 No. 2, March/April 1999 VAT MONITOR 63 the case of the VAT Act, no comments were received from the private sector on the VAT regulations. Cabinet approved the regulations on 27 January 1997. The Operational Manual was initially drafted in 1996 and was finalized in the fall of 1997. HMG/N approved the operational manual on 21 September 1997. The manual has been prepared in nine volumes covering all aspects of VAT from the law through to investigation of offenses. They are: (1) Organization and management, (2) Charging and accounting for value added tax, (3) VAT registration, (4) Collection and enforcement, (5) Payment of claims for refund, (6) Verification and audit, (7) Fraud investigation, (8) The VAT computer system, and (9) VAT Act and rules. The Manual is expected to facilitate day-to-day administration and reduce the risk of varying interpretations of the tax laws by different officials. In addition, a number of computer user manuals have been produced. VAT law has stipulated a consumption type VAT using the credit method, which is based on a destination principle and extended right through the retail level. It is levied with a single rate of 10%. Exports are zero-rated while several items such as unprocessed food, live animals, and livestock feed, medicine and books are exempt. Taxpayers are allowed to take immediate credit of the tax paid on their inputs. However, only 40% of the input tax is deductible on automobiles and aeroplanes. The corresponding figure is 60% for computers. No credit is given for the tax paid on petrol. Excess credit is to be carried forward for 6 months. A VAT refund arises under the following situations: – where a person exports more than 50% of his total sales in any one month; – where a person is in credit for a continuous period of 6 months; – to accredited diplomats, foreign agencies and foreign funded projects. Taxpayers are required to issue tax invoices and collect VAT on their sales. There is a provision for abbreviated invoices in the case of low value sales of less than NPR 500. Taxpayers are required to keep a record of their purchases and sales and submit a monthly return within 25 days of the end of that month. Voluntarily registered taxpayers can submit quarterly returns. Taxpayers are required to pay the tax within 25 days of the close of the month. VAT is based on the principle of self-assessment. Official assessment is made only in the following circumstances: – where a return is not submitted on time; – where an incomplete or incorrect return is identified; – where a VAT return is found to be fraudulent; or – where a tax officer has reasons to believe that the amount of VAT has been understated or is otherwise incorrect. © 1999 International Bureau of Fiscal Documentation Taxpayers can file an appeal at the Revenue Tribunal against a tax assessment or a penalty order by the tax office within 35 days of receipt. 3.2. Taxpayer education programme As VAT is a tax based on the self-assessment of taxpayers, their cooperation is essential for the success of this tax. It was, therefore, planned to educate the potential taxpayers before the tax was introduced. It was also necessary to dispel some of the fears of VAT held by business communities and to give them and others some idea of the structure and operation of VAT and its possible effects on their particular businesses. To this end, a comprehensive VAT education programme was launched. Information was disseminated on a large scale through the media. Seminars and public speeches were organized at various places for various groups. For example, VAT interaction groups were held with the FNCCI, many district chambers of commerce and industry, commodity associations and professional organizations. Similarly, VAT presentations were made at programmes arranged by different organizations, including various training centres, universities, campuses, schools, and rotary clubs. General brochures for all, and special brochures for particular groups (such as hotels, travel agencies, importers and exporters, consumers) were developed and distributed. Most of the brochures were produced in both English and Nepali versions. In addition to the above, many articles on aspects of VAT were written and published in national newspapers. Different posters were also prepared. Similarly, three VAT videos have been produced and broadcast. They are: “A brief introduction to VAT”, “The impact of VAT on prices”, and “VAT registration”. Similarly, many TV and Radio programmes were organized on aspects of VAT. An information service was provided to callers from business and the general public. In the middle of 1997 it was decided to hire a local advertising company to create and carry out the overall information strategy through television, radio, newspapers, posters, brochures, etc. Information relating to activities such as the date of the introduction of VAT, the period within which taxpayers must register, the date of submission of returns and payment of tax, VAT accounting systems, penal provisions, etc. were advertised widely through the media. The taxpayer education programme continued even after the introduction of VAT. Through the advertisements, taxpayers were invited to participate in VAT training programmes in the VAT Department as well as VAT offices. Participants did not have to pay any fee for these courses. Thus an extensive taxpayer education programme was launched to educate potential taxpayers and others in most
64 VAT MONITOR Vol. 10 No. 2, March/April 1999 aspects of VAT. The focus of these programmes was on the business community. It was a right approach to explain to them the rationale and working of VAT and to get input for the refinement of the draft law. The business community, however, did not care about the rationale of VAT and were not serious in learning VAT formalities. Instead they have been opposing VAT strongly even since its introduction. The government was criticized for organizing interaction programmes mainly for the business community that was not serious and ready to accept VAT. Consequently, the taxpayer education programme intended for the business community was not that effective. The business community did not believe in the introduction of VAT. Attempts also have been made to educate consumers on different aspects of VAT. To this end, posters and brochures have been prepared and distributed. Similarly, television programmes have been developed and broadcast. The business community, who tried their best to turn consumers against VAT by making propaganda that VAT is inflammatory, could not lure them. This was assumed to be the result of the VAT education programme launched for the consumers. 3.3. Administrative reorganization The sales tax and excise administration was made responsible for the administration of VAT. The Sales Tax Department, which was established only in 1992, was in its infancy. The unification of the Excise and Sales Tax Department in 1993 had expanded the scope of this administration regarding the number of tax officials and tax offices. This administration had 18 field offices and 471 officials, and of these officials, 47 were gazetted (officer level) and 424 non-gazetted (assistant level). The number of non-gazetted level posts was very large. Most of these officials had previously worked in the excise administration. They were not familiar with the sales tax administration. The organization of the sales tax and excise offices was not functional; the same officer was responsible for registration, assessment and collection. Such a system was corruption-prone. Further, under this organization, there was a lack of inspection, audit and enforcement. Furthermore, sales tax and excise administration had been viewed as the least important part of the total revenue administration. Revenue officials used to prefer to work either in the tax or the customs departments. In general, officials who could not be accommodated in the tax or customs departments used to be transferred to this department. Thus the sales tax and excise administration, which collected more than 40% of total tax revenue, was very much neglected. Such an administration was not appropriate or adequate for the implementation of VAT. It was, therefore, necessary to revamp and reorient this administration due to the modern nature of VAT. In this context, a study of the sales tax and excise administration was conducted. This established that the sales tax and excise administration was not functional and unsuited for VAT. A revised organizational system based on functional requirements and setting out a hierarchy of personnel responsibility was drawn up and recommended. 12 This had been largely accepted and the new system was approved and implemented in July 1996. Under the new structure sections and subsections were created on the basis of the function of VAT administration. Large taxpayer, tax refund, taxpayer services, tax audit and investigation, internal monitoring, collection and registration are important sections of VAT administration. The number of gazetted officers was increased substantially while the number of non-gazetted personnel was reduced drastically. The total number of staff positions within the VAT organization is 494, out of which 120 are gazetted, 261 are non-gazetted, including accountants and computer operators and 113 are peons/drivers. The Public Service Commission could not recommend required officials on time. Consequently, not all positions were filled by 16 November 1997, i.e. the date of VAT introduction. While almost all gazetted positions in district offices were filled, 16 out of 37 gazetted positions were not filled in the Department. Out of the 261 non-gazetted positions, 82 positions were vacant. Due particularly to the vacancy of the high level positions, some tasks like internal monitoring and analysis of computer output could not be done on time. Similarly, the lack of non-gazetted staff has created problems at the district offices whose work has increased substantially after the introduction of VAT. 3.4. Training © 1999 International Bureau of Fiscal Documentation It was necessary to train officials recruited for VAT administration on various aspects of VAT before they were assigned particular jobs. To this end, various training programmes were organized in order to familiarize tax officials with VAT. These programmes were mounted not only for VAT Department and VAT District office personnel, but also officials of the Customs Department, Tax Department, Ministry of Finance, Revenue Investigation Department, Revenue Administration Training Center, the Accountant General’s Office, and the Auditor General’s Office. Training of tax officers continued even after the introduction of VAT. Training programmes organized before the introduction of VAT were more general. After the introduction of the VAT, the concentration was on specific training programmes. In this connection, special training programmes on specific issues such as refunds, collection, accounting and auditing were organized. Similarly, a system was established to organize workshops for the chiefs of VAT offices every 2 months to share experience. With 12. It was very difficult to get approved the new organizational and personnel system from the Ministry of General Administration that was blocking the work without any reason.
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