Yesterday was a Better Day

 

(Speaking in a seminar on VAT in 2005)

A good tax system is that where the government get its due tax with minimum cost of administration and the taxpayers comply with less cost of compliance; the taxpayers are not harassed; the system does not hinder business, but helps growth of industry and economy.

Tax collection registered a good growth rate across the states after introduction of VAT. The average growth rate in collection of sales tax for five years prior to VAT was 11-12% in the country where as the average growth rate in VAT collection of five years after VAT was 16-17%. In Odisha, the average growth rate for five years before VAT was 13% and after VAT, the average growth rate for five years was 19%.  If we take ratio of VAT to GSDP, sales tax collection was 1.8% of GSDP in 2005-06; it increased in VAT to 2.5% of the GSDP in 2012-13.

VAT came into force in 2005. The officers, who had worked fifteen or twenty years in sales tax by 2005, found it difficult to cope with VAT and the ensuing administrative restructuring. They could not resist the changes, but heaved long sighs, and blamed VAT.

I had written an article on the mindset of the officers, their lack of adaptability; analyzing the reforms and its impact, giving comparative collections of tax before and after introduction of VAT. Sambad published the article on 13.02.2014 under the caption; ‘Galakali Bhalathila’ (Yesterday was a Better Day). The article discomfited many senior officers. They did not tell me directly, but there was noisy murmuring that reached me.  One senior officer said, “Why are you writing this stuff? Why don’t you write something else?”

                               (Yesterday was a Better Day by Sahadev Sahoo, Sambad, 13.2.2014)

I am a fictionist; I write stories and novels. Sometimes, on a very few occasions, I write features for the newspapers. I replied, “You don’t read what I really write, my stories and novels. You read only these.” 

In protest, Rabindra Kumar Patnaik wrote one feature, ‘VAT Kete Bhala, Kete Bhela!’(VAT: Good or Bad!), and published it in Sambad on 7.3.2014. His article pleased many senior officers; some of them spoke to me with glee. In fact, they did not understand what I had written or what he wrote, but it was a public protest against my article, published in the newspaper which had published mine. That was enough for their delight. Rabindra Kumar Patnaik was a senior OFS officer. The gist of what he wrote (my translation):

1. ‘Yesterday was a Better day’ is misleading, and an attempt to cover up tax evasion. Selected statistics are taken to prove VAT growth rate. Composition of GDP is not taken, growth of industry and service and their contribution to GDP has not been factored.

2. It is disappointing to note collection of tax during 2013-14 (up to January) has not been considered in the article, he alleges.

3. Patnaik has discussed the less than satisfactory collection of VAT in 2013-14 and cited the illegal mining and the scam during VAT regime.

4. Invoices are not issued hundred percent in VAT and the big business are not also transparent and principled, he accuses.

                            (VAT: Good or Bad! by Rabindra Kumar Patnaik, Sambad Dt.7.3.2014)

The thrust of the article, “Yesterday was a Better Day” was not to discuss tax evasion or GDP growth. The article stressed on the necessity of change of mindset of the officers entrusted with VAT administration. Comparative collection of sales tax and VAT and proportional increase of the VAT collection to GDP cited to prove the point that VAT was doing well; the figures given to indicate the State did not incur loss, rather there was increase of tax collection after introduction of VAT.

Composition of GDP, Patnaik has harped on in his article, is not relevant here. The point here is whether there is proportional increase of VAT collection to the GDP, and it has. Had there was decrease of VAT in ratio to GDP, it would have construed VAT was a failure or VAT had serious shortcomings. He says about growth of service and its share to GDP that has not been factored. His argument is not clear. Sales tax or VAT is collected on sale of goods, not on services. Centre collected service tax, which was not in the state’s domain. As per his argument, if we deduct service component from GDP, since VAT is not levied on services, the proportional increase of VAT to GDP would be rather more, and it would bolster the argument that VAT was successful. Of course, analysis is not done the way he hinted. 

He mentions the much talked about mining scam and illegal mining, and says during VAT period, mining scam of more than rupees sixty thousand crore has taken place. What is the relation of theft or robbery to VAT? Mining pilferage takes place in violation of forest or mining law. VAT and for that matter, any taxation law cannot do away with all the crimes and corruption in the society.

He says the dealers do not issue bills and big businesses are also not transparent and principled. It can also be argued, on the other hand, dealers did not also issue bills in the sales tax regime. The officers were also not honest, paragons of virtue, men of principles. The Supreme Court, in a case in 2010 has remarked, the most corrupt departments in India are income tax, sales tax and excise departments. Compared to sales tax, compliance in VAT was definitely better.

No tax system is flawless. Every tax law has its shortcomings.  “Yesterday was a Better Day” was an attempt to compare VAT with sales tax to prove VAT was better than sales tax. Arindam Dasgupta makes a study of VAT in twenty nine states, and analyses VAT collection with reference to GSDP in an article, An Assessment of the Revenue Impact of State Level VAT in India, published in Economic and Political Weekly (Vol.47, Issue No. 10, March 10, 2012). He has found positive impact of VAT on states’ revenue, particularly in Haryana and Odisha (Page-21). Md. Ajam Khan and Nagma Sadab of Economics Department, Aligarh Muslim University has also similar view and has mentioned quoting audit reports, “The cost of collection of sales tax/VAT is less than Indian average due to the voluntary compliance mechanism of OVAT Act and efficient tax administration.” (Romanian Journal of Fiscal Policy, January-June, 2013. Page-47).

                    (VAT may have flaws, but it is better. by Sahadev Sahoo, Sambad dt.19.3.2014)

I wrote a rejoinder against the article of Rabindra Kumar Patnaik, which Sambad published in its opinion page on 19.03.2014 under the caption, VAT byabastare kichhi truti thaipare, kintu a byabasta bhala, (VAT may have some flaws, but it is better).

Rabindra Kumar Patnaik was director, MIAF. I had been taking class in MIAF as a guest faculty since 2000. But after “Yesterday was a Better Day” was published, MIAF stopped inviting me to take class. Again, I got invitation after Patnaik’s transfer.

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