The purpose of establishing check-posts is not to collect taxes but to check evasion of tax. But instead of checking tax evasion, it has now become points of bribe-taking and a great hindrance of free movement of goods and business.
The Transparency International in a study titled ‘Report on Corruption in Trucking Operation in India, 2006’ states that the study undertaken on efficiency of check-posts in different States has revealed that the existence of check-posts does not contribute significantly to checking tax evasion. On the contrary, the more the check-posts, the higher is wastage resulting from stoppage of traffic. Contrary to its purpose, the checkposts act as collection points for bribe money.
Another joint study report by TCI-IIMC says that drivers pay on an average fifteen per cent of their trip expenses on their road stoppages that includes unofficial payments to Government officials. Besides, there is wastage of time. In India, a truck travels on an average 250-400 km a day whereas in China it covers more than 500 km and in the USA and European countries it covers an average 800 km per day.
Check-post was, perhaps, a necessity during sales tax regime. Goods move through different stages, from manufacturer to wholesalers to retailer, till it reaches the consumer. Under the sales tax system, if tax is collected at one stage, no tax is collected at subsequent stages of sale. If tax is evaded at that single point of sale, the tax is lost. Besides, Central Sales Tax (CST) is collected on inter-State sales whereas stock transfer from one branch to another located in the other State does not attract tax. To evade tax, a fraudulent dealer may intentionally declare his inter-State sales as stock transfer. At the check-post, the vehicles carrying goods are stopped and the documents the owner or driver of the vehicle carries with him are cross-verified with the goods. If the goods carried in the vehicle is not as described in the documents or is found in excess of what is in the documents, tax and penalty are collected.
In the changed scenario, with reforms in the field of indirect taxation and use of IT in tax administration, the check-posts have outlived their utility. VAT replaced sales tax in 2005; and now, GST is scheduled to be introduced fromApril 17. VAT, CST, Entry Tax, etc., are going to be subsumed in GST. GST will have two components, Central GST to be collected by Central authority and State GST by the State authority, on same transaction. Besides, Integrated GST (IGST) will be collected on inter-State transactions; the IGST Act to be passed by parliament and administered by the Central authorities.
An example: If a taxpayer has a rupees-one lakh turnover and the rate of tax is 10%, he is to pay Rs 10,000 to the Centre and Rs 10,000 to the State. In case of inter-State supply, he is to pay IGST, which will be the amount of State GST plus Central GST. In the VAT or GST, there is a system of input tax credit (ITC). The taxpayer avails of the tax paid on purchases when he supplies. He will collect tax on supplies, adjust the tax paid on purchases and pay the balance. In case of inter-State supplies, he will pay tax in the State where he purchases and avails of the tax paid on purchases in the State on his supplies. In order to avail of credit, the taxpayer has to have invoices. Without valid invoice, he cannot avail of the credit. That is why VAT or GST is called a self-policing system.
Besides, in the GST, there is a provision of ITC matching. That means the taxpayers have to upload their purchase and sale invoices while filing their returns in the portal. The purchase invoice will be matched with the corresponding sale invoice in the system; if it matches then only the supplier will be eligible to avail of credit of tax paid on his purchases. To suppress sales or purchases will be an advantage neither for the supplier nor for the buyer.
Presently, VAT or CST is collected by the State only. Under the GST, both Central and State authorities will simultaneously collect the tax. Moreover, in the IGST system, the supplying as well as receiving States also have their stakes. Instead of one State, now the transactions have to be monitored by Central authorities and State authorities. Evasion by a taxpayer will really be difficult.
It may be mentioned that the Odisha Sales Tax Act had been implemented since 1947. Initially, there were no check-posts. Check-posts were set up during 1961-62. The State had 37 check-posts and of the them, 20 check-posts have been abolished. Of the 20, fifteen check-posts had been abolished in 2000, that is, during the sales tax regime. Abolition of check-posts had no adverse impact on revenue collection. The State now has 17 border check-posts. Rajasthan, Chhattisgarh and Haryana also had check-posts. They have abolished them. There is also no adverse impact on revenue collection. Rather, they have normal growth rates in collection of taxes. On the other hand, the business and industry are happy. They can do hassle-free business.
The PM’s ease of doing programme has a proposal for abolition of check-posts. There is a need for a seamless and free movement of vehicles to attract investment, create a hassle-free environment for business and help growth of economy and industry.
(The writer is a Joint Commissioner of Commercial Taxes, Odisha. The views expressed are his own)