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e-Tax Administration
Department of Commercial Taxes, Government of Kerala, India
India

The Problem

The Department of Commercial Taxes mobilizes 72% of tax revenues of the State of Kerala, amounting to USD $ 3 billion, with a focus on collecting Value Added Tax on the sale of goods. The department caters to more than 170000 traders. Traditionally, the department had the image of being corrupt with cumbersome procedures. The system was paper document based and the traders were administered by 141 offices geographically distributed across 14 revenue districts with a man power of 4613. Real-time data sharing among different offices was not possible resulting in sub optimal scenario for traders, officials and the Government.

Filing Returns: Registered traders are mandatorily required to file periodic returns at the assessment office along with the detailed enclosures of purchases and sales effected during the period. Compliance under different taxing statutes meant filing multiple returns. Traders have to calculate tax dues and remit them to Government. The volume of returns received per annum is over 2.2 million with an average of 12 page enclosures attached per return. These returns should be scrutinized within one month to arrest tax leakages. However, considering the volume it was not possible to scrutinize more than 20% of the returns filed.

Remitting Tax: To remit tax, a trader requires multiple office visits. (a) He obtains the prescribed forms countersigned by the assessing officer. (b) He visits the treasury officer for affixing remittance sequence number on the form. (c) He remits taxes at the nearest treasury and (d) finally submits the forms in triplicate back to the assessing officer for accounting. The number of remittances made annually was more than 10,80,000 and reconciliation of accounts was a difficult task.

Interstate Consignments: Dealers who conduct inter-state trade have to furnish returns separately under the Central Sales Tax Act. Interstate consignments undergo inspection at the border check posts. The cargo movers submit a declaration of goods transported along with copy of the consignment documents. Such documents are sorted and transferred to the assessing officer periodically for accounting. The number of vehicles carrying interstate consignment is estimated to be 1.8 million per annum with an average of 4 enclosures per transaction making the process of reconciliation impossible.

Tax Credit: Dealers are eligible for Input Tax credit on the purchases effected from registered dealers within the state. The net tax due is calculated by deducting the input tax credit for the respective month from the output tax collected. Officers were unable to ensure the genuineness of input tax claimed due to lack of real time availability of relevant information. Hence, officers were constrained to accept the returns, without an effective scrutiny by cross verification of purchases with the corresponding sales and vice versa.

Commodity Misclassification: To evade payment of tax, the traders willfully misclassify commodities taxable at 12.5% as those taxable at 4% of the value, which was difficult to check due to the voluminousness of paper submitted.

All this resulted in the physical impossibility of verifying all the documents, which affected compliance significantly.

Solution and Key Benefits

 What is the initiative about? (the solution)
Simplified Filing of Returns: Traders can now file a single integrated, simplified return under different Acts. E filing avoids the Errors in tabulating Input Tax credit, Output tax, Reverse tax, Special Rebate and Net tax payable. Visits to tax office, long queues and restricted timings for submission of returns are avoided. To overcome the digital divide, e-filing services are provided through Citizen Service Centers, free of cost, largely covering small traders, becoming the first and only such initiative to achieve 100% coverage. Return accounting registers are generated electronically. Annual registration renewal is facilitated online without office visit.

Easy Tax Remittance : e-Payment has enabled a hassle free tax remittance system. By integrating Banks and Treasuries with the system, tax due is automatically computed and electronically credited to Government account. The dealer can verify his tax dues and payment credits instantly on submission of returns. Tax accounting is now entirely automated and maintained by the system and reconciliation is instantaneous. No case of missing credit has been reported till date. The department realizes tax revenue instantly. All taxpayers now avail of e-filing and e-payment.

Real time Data capture on Interstate Consignments: Traders avail electronic download facility for statutory forms to avail tax concessions for interstate consignments and thus avoid office visits. No instance of bogus statutory forms (once rampant) has been reported till date. The issued statutory forms are published online for verification by any trader/tax official. Traders can electronically declare interstate consignments and avail faster clearance at check posts and effect e-payment of advance tax. Transaction time for check post clearance is reduced to 20 minutes from an average of 3 hours especially for export consignments and FMCG. The check post consignment transaction is immediately accounted in the dealers profile maintained at the assessing office.

Effective Scrutiny & Improved Compliance: e-Filing enabled the department to effectively conduct return scrutiny electronically. Compliance level has improved from 50% to 90%. Tax base has grown from 100,000 to 172,000 traders. Dealers now prepare sales & purchase invoice details offline and upload the same electronically. Office space occupied by the paper documents is reduced by 60%. Scrutiny rate has improved from 20% to 80% within a timeframe of 1 year. Overall tax compliance by dealers arose from 40% to 80%. The department achieved an annual growth rate of 16% in tax revenues in the year 2009-10 despite recession and 25% in the first two quarters of the current year. While the economy is only growing at around 8% annually the asymmetric hike in tax collection is due to greater compliance on account of computerization.
The benefits from a trader perspective are, simple & transparent process, anytime anywhere service, reduction in paperwork, avoids office visits, instant acknowledgement, system generated annual return and elimination of corruption. The benefits from an office perspective are reduction in paperwork, scrutiny of returns are made easy, instant credit of Tax, creation of data bank of dealer to dealer transactions, refund verification is made easy and treasury reconciliation is avoided.

Actors and Stakeholders

 Who proposed the solution, who implemented it and who were the stakeholders?
The project was initiated as State Mission Mode Project (MMP) in tune with the National e-Governance Plan (NeGP), of the Government of India. Mr. V. Somasundaran IAS, Commissioner of Commercial Taxes initiated the project and Mr. Paul Antony IAS actively pioneered the conceptualization, design and implementation. He was the principal contributor towards process re-engineering and re-structuring of the department to embrace e-Governance and exhibited strong leadership and ownership in digitization and laid the foundation to begin e-Services. The initiative was very well appreciated and taken forward vigorously by his successor Mr. P. Mara Pandian IAS, Commissioner by implementing e-Services like e-Returns, e-Payment, e-Forms and e-Registration. Mr. Suman Billa IAS, the present commissioner is currently championing the project and has contributed e-Stock, e- consignment declaration, remote monitoring of check posts and e-Audit to the list of services. Data mining has now evolved as a valuable tool in augmenting tax collection and compliance.

Government of Kerala has constituted a Technical Committee consisting of IT experts from the industry, government, public sector and domain experts from the department. The Technical Committee gives a sense of direction and advises the department on key decisions on issues pertaining to the project. The Department has constituted an IT Management Cell consisting of technical members from within the department to monitor the progress of implementation of the project, its administration and Change Management. IT Management Cell performs the key aspect of co-ordinating with various entities involved viz. the department, vendors, banks, treasury, and stakeholders from amongst the users. System administrators are posted in 14 districts to administer district level project implementation.

M/s CMC Ltd is the software vendor and a key contributor to the development of this project. The company worked with the department by housing their development team on-site. The scope of the project is enormous and has significant impact on the business community. The company has exhibited professionalism in materializing the project. The maintenance of the software is undertaken by M/s CMC Ltd.

The servers are located at State Data Centre, setup by Kerala State IT Mission and owned by the Kerala Government. The supply and maintenance of client workstation PCs are done by M/s HCL Ltd. M/s Frontier Systems has implemented and maintains the Wide Area Network connecting 441 geographically distributed offices through the Kerala State Wide Area Network Infrastructure.

VAT Consultative Committee (VCC) consisting of members of Chamber of Commerce, traders associations who represent major stakeholders actively participate in the project. Consultations are held with the VCC at each stage of the project implementation and suggestions are taken during the implementation.

Akshaya Citizen Service Centre, an entrepreneurship project in association with IT Mission partners the department in delivering electronic services through 1187 Akshaya Citizen Service Centers critical for covering those who are unable to access IT infrastructure. Kerala Commercial Taxes is the first and only department in the country to achieve a 100% coverage for its e-services.

(a) Strategies

 Describe how and when the initiative was implemented by answering these questions
 a.      What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
The main objectives are:
· Minimize corruption
· Eliminate physical presence and restricted timings to service access.
· Simplify processes, ensure user participation and reduce discretion of tax officials
· Ensure timely delivery of service to stakeholders
· Ensure transparency and optimize tax collection
· Creating an environment conducive for tax compliance

The implementation of the project was in a phased manner. The objective of first phase was to switch over from manual registration and check post transactions, to a fully automated by digitizing the users trade particulars. Software modules were developed and the switch over to digitization of registration and check post transactions was effected. IT Connectivity to all offices was established. 100% digitization for registration and 30% for check post transactions through intranet was achieved.

The objective of the second phase was digitization of periodic returns and enforcement operations, and initiate electronic scrutiny. The strategy adopted was to begin with digitization of backlog returns off-line, along with the current returns and aim for convergence of data. 50% digitization for returns and 10% for enforcement operations was achieved.

The objective of the third phase was to introduce electronic return filing facility with automated tax calculation to the traders in a staged manner. In the first stage, traders with an annual turnover of 50 lakhs and above were covered for mandatory e-filing facility. Enclosures could be prepared offline and uploaded along with returns. Later, traders with annual turnover of 25 Lakhs and above were included in the mandatory e-filing group. Finally the challenge of including the remaining small traders was overcome by using Akshaya Citizen Service Centers thus becoming the first and the only such initiative to achieve 100% coverage in India.

The objective of the fourth phase was to introduce mandatory e-payment facility for tax payment through electronic integration with banks and treasuries and to provide e-Declaration facility for interstate consignments. Participation rate for e-payment was 100% and e-declaration at 10%.

The objective of the fifth phase was to conduct electronic scrutiny of e-returns filed, by cross verification of the transactions among counter-party traders. Officers were able to scrutinize returns electronically, ascertaining the genuineness of input tax claims.

The objective of the sixth phase was to provide the facility for downloading of statutory forms to avail tax concessions and thereby prevent bogus concession claims. The required forms can be downloaded instantly, provided the transaction invoices are uploaded along with periodic returns. The facility is mandatory and the participation rate is 100%.

The seventh phase introduced the e-renewal of registration, e-closing stock upload facility and e-audit reports upload facility with the objective of ushering in transparency and effectiveness in assessment.

Digitization was thus achieved bit by bit in an incremental and laborious manner wherein all the stakeholders traders, employees, vendors shouldered the responsibility to transform the system. Underlying the entire effort is the focus on reengineering the processes in order to rationalize and simplify them. Dead wood accumulated over the years of incremental change was removed and the processes optimized.

(b) Implementation

 b.      What were the key development and implementation steps and the chronology? No more than 500 words
The e-Tax program had a clear road map for implementation to achieve its goals and objectives in a time bound manner. The key development and implementation steps of the program were:

1) Setup Commercial Taxes Website – Apr 2003
2) Constitution of Technical Committee - Jul 2004
3) Initiation of digitization project - Jul 2005
4) Setup of IT Management Cell – Aug 2005
5) Re-design of Commercial Taxes Web Portal – Oct 2005
6) Setup Development infrastructure for KVATIS Software – Oct 2005
7) Setup wide area network / Local Area Network – Mar 2006
8) Procurement and installation of Servers / Hardware – Apr 2006
9) Delivery, testing and piloting of KVATIS Software – Nov 2006 - Apr 2007
10) Launch of e-filing of return services to major tax payers– Sep 2007
11) 24 Hour toll free VAT helpline services – Jun 2006
12) Launch of return, purchase/sales invoice uploads services to all dealers. First State in India to introduce e-Filing services to all registered dealers – Jan 2009
13) Launch of the e-Payment gateway facility – Sep 2009
14) Launch of e-declaration uploads facility for transporters – Dec 2009
15) Launch of e-forms downloads facility for interstate consignments – Jan 2010
16) Launch of e-Renewal facility for annual registration renewal – Apr 2010
17) Launch of e-closing stock upload services – Apr 2010
18) Setup of electronic Data Mining team – May 2010
19) Launch of e-Audited statements uploads facilities – Oct 2010

Achievements:

1) 100% coverage of tax payers in utilizing e-services
2) 100% reliable database of trader to trader transactions
3) 100% integration of all wings of the Department.
4) Achieved a stable growth rate in tax revenue.
5) Department is able to provide “any time, anywhere services”
6) Extended service delivery through citizen service centers (Akshaya) free of cost thus achieving 100% coverage.
7) Instant payment and reconciliation by electronic integration with Banks and Treasuries
8) State e-Governance Award for Best Utilization of Akshaya – 2009
9) State e-Governance Award for e-Payment Services – 2010
10) e-India 2010 Award in G to B category for e-Tax Administration – 2010
11) CSI Nihilent Award in G to B category for e-Tax Administration – 2010
12) Successfully reengineered the processes and computerized the entire gamut of operations involving taxpayer interface.

(c) Overcoming Obstacles

 c.      What were the main obstacles encountered? How were they overcome? No more than 500 words
1. Non-availability of digitized dealer data. This was a major hurdle in flagging off the operations. The department engaged a team of system administrators to develop and implement tools for digitizing dealer details. Registration applications are electronically converted and stored in the database. Return digitization backlog of more than 2 years was overcome by making backlog return upload mandatory for dealers.

2. Digital divide among officers. The majority of the officers were new to computer systems. Keeping in mind the enormity of the project being implemented, three regional training centers with 50 terminals were established to provide specific, intensive, continuous and hands on training to the staff.

3. User resistance. Majority of the staff were reluctant to change the procedures followed for decades. Some of them did not use computers at all even after repeated instructions. Employee Unions were convinced to champion the project to reduce employee resistance. IT Management Cell conducted 20:20 analysis of performance, whereby best performing and poor performing 20 officers are identified on a monthly basis adopting a carrot and stick policy. The strategies helped in improving computer usage.

4. Data Accuracy. Initially the traders could not correctly enter the data. Hence the data was entered by the officers on the basis of paper documents submitted by the dealers. The digitized data was provided to the dealers on-line for reporting discrepancies. Later the traders themselves were allowed to submit the data electronically.

5. High number of trading commodities. The commodities were classified into more than 8000 catogories. Traders found it very difficult to choose the relevant commodity from this long list. The available commodities were grouped into 309 categories thus simplifying the process.

6. Multiple returns for the same period. A dealer has to submit separate returns under different Acts. All returns are integrated into a single return so that only one return needs to be filed for a specified period.

7. Digital divide among trader community. Trader representatives / Accountants were also provided continuous training on using the system at three regional training centres. Small traders who are a majority do not use computers. Free electronic filing facility was provided to them through Akshaya citizen service centers.

8. Implementation of e-Payment. Reserve Bank of India approved two banks SBI and SBT for e payment. However, traders have accounts in different banks, which are not authorized for e payment. Banks were persuaded to allow traders to open zero balance accounts for remitting tax.

9. Vendor monitoring. The department contracted with multiple vendors for the implementation of the project with distinct Service Level Agreements. As it was difficult to coordinate the activities of these vendors, an IT Management Cell was constituted to monitor SLA compliance and coordination issues.

(d) Use of Resources

 d.      What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
The e-Tax Administration program was initiated by the Commercial Taxes Department as a fast track implementation project in the year 2006, to streamline business processes and achieve automation of several G2B transactions. KVATIS evolved as a result of serious efforts in technology planning, business process re-engineering and training undertaken by commercial taxes department and resulted in the transformation of the department into an electronically governed department. KVATIS is now the core e Governance Information system of the Department.

KVATIS was designed to operate from a central data centre in a web-browser client architecture mode that was easier to implement, access, use and maintain through the network. The Department made effective use of the State Information Infrastructure, linking all of its offices through the state wide area network infrastructure, which were provided under the assistance of National e-Governance Program.

The e-Tax Administration program provides G2B services over five channels – the Department official web portal, Citizen Call Centre service, Akshaya e-Centre service, Vat Helpline services through Telephone, Mobile phones, sms, and e-mail and through authorized trade organizations. The program integrates bank services and Treasury services to provide fast and easy services.

The KVATIS program is a completely state funded project. The total outlay of the programme for three years of implementation is 401.25 million Indian Rupees or $8900000 USD. This includes the cost for technical and human resources. The technical cost comprises of the hardware, software, technical consultation assistance and implementation efforts. The formation of IT Management Cell has provided management and technical support for the project implementation. Additionally, the support of working groups in each district was being extensively used for the implementation. And wherever the government requires external technical assistance, they procure the same through competitive tenders. The ratios corresponding to cost of collection is 0.81% and tax to GSDP is 8.56% for the year 2008-09.

Sustainability and Transferability

  Is the initiative sustainable and transferable?
The Government of India approved the National E-Governance Action Plan (NeGP) to set up the core infrastructure and policies and implement a number of Mission Mode Projects at the Centre, State and integrated service levels to create a citizen-centric and business-centric environment for governance. The Department of Commercial Taxes, Government of Kerala is one of the identified Mission Mode Projects which intends to transform key process leading to improved service delivery and build capacities among all the stakeholders to enable them to perform better. The project cost is 401.25 million Indian rupees or ($890000) out of which the Government of India funded Rs 290.85 million ($623000) and the Government of Kerala funded 110.40 million ($267000).

The following efforts are being taken for the sustenance and replication of the program:

a) Social auditing process by independent agencies to judge the impact of automation and improve levels of service delivery.
b) Periodical VAT Consultative Committee meeting headed by the Minister for Finance and comprising of representatives of various stake holders.
c) District level evaluation of progress by conducting district grievance cell meeting with local trade organizations.
d) Best tax payers in different categories are honored by giving awards each year.
e) Periodic review of performance of the vendors by the Technical Committee and initiates corrective measures.
f) Monthly review of District Heads by Commissioner, for operational assessment.
g) Awareness campaigns through visual, radio and press media for e-Services.
h) Publishing pamphlets, handbooks, and operational instructions for availing services.
i) On-line tutorials demonstrating procedures to access various e-Services.
j) Impart training to all stakeholders when a new e-service is started.

Even though most of the states are keen on computerizing their tax departments, none has been as successful as Kerala. The Kerala model has proved that it is possible to
1. simplify processes and computerize a corrupt and cumbersome department like Commercial Taxes
2. over come the digital divide and achieve 100% coverage
3. Significantly improve the level of scrutiny and there by vastly improve compliance.

Kerala is the role model to other states which in the process of computerizing their departments. Since the systems are more or less similar in all the states, it is possible for the other states to just follow the Kerala model instead of reinventing the wheel. The states of West Bengal, Karnataka, Bihar, Gujarat, and Tamil Nadu have sent their teams to Kerala to study our model and replicate the same. Some of our modules have been adapted and implemented in other states. A training programme was conducted for officers of the Department of Commercial Taxes of the state of Sikkim. Similar programs for other states are on the anvil. The model is also relevant and applicable to other developing economies, placed in a similar context.

The Comptroller and Auditor general in is report on the Implementation of Value Added tax in India has remarked that Kerala is the only state to successfully computerize its activities and ready to switch over to Goods and Service Tax.

Lessons Learned

 What are the impact of your initiative and the lessons learned?
The e-Tax administration program introduced in Kerala has been widely accepted by the business community not only in Kerala, but also throughout India. The impact made by the program is manifold –it improved efficiency of tax administration, simplified procedures, improved transparency, reduced workload, lowered integration costs, less paper work, reduced service delivery time, enhanced multi channel service delivery, simplified and standardized procedures, ensures quality and improved dealer satisfaction.

Another remarkable achievement is that the department is able to reduce the direct presence of dealers in the Commercial Tax offices for availing its services. This has resulted in minimizing corruption and red-tape.

The key elements that made this program a success are the following:

a) Clear political mandate and support from the political leadership (Minister for Finance)
b) Eminent members from the Indian Administrative Services lead the project.
b) Highly motivated team in CMC Ltd and Kerala State IT Mission.
c) Enthusiastic and innovative team in IT Management Cell of the Department.
d) High level of administrative support for coordination of participating agencies.
e) Dealer centered process re-engineering of the Department.
f) Various trade organizations, tax professionals, charted accountants and lawyers who embraced the new system.

The consistent growth in tax revenue collection after the implementation of the project shows the result of successful execution and acceptance of the project by all stakeholders including traders, officials and others. The overall acceptance of the project improved efficiency in its business operations and demonstrated an advanced state of e-Governance. The Commercial Taxes Department is in its most critical phase of achieving maturity levels in e-Governance.

Contact Information

Institution Name:   Department of Commercial Taxes, Government of Kerala, India
Institution Type:   Government Department  
Contact Person:   Suman Billa
Title:   Mr  
Telephone/ Fax:   +91-471-2321252
Institution's / Project's Website:   +91-471-2335427
E-mail:   commissioner@keralataxes.gov.in  
Address:   Commissioner, Department of Commercial Taxes, Public Office Building, Vikas Bhavan P.O
Postal Code:   695033
City:   Thiruvananthapuram
State/Province:   Kerala
Country:   India

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