Praveen William A.
Partner
Indirect Tax
KPMG in India 

 

The state of Karnataka is among the favoured destinations for global investors over the years. The initiatives taken by the successive State governments to provide world class facilities have attracted various businesses to set up their operations in Karnataka. The government of Karnataka has also taken steps to develop the entire landscape in Karnataka, to attract investors by providing benefit schemes linked to the location, nature and scale of operations, creation of job opportunities, etc.

However, over the years, the business fraternity has seen a paradigm shift in the way business is conducted. From a traditional physical market place to business through electronic portals, mobile applications and virtual market place, etc. all of which have led to revamping the taxation legislations in India. With the diverse nature of transactions and given the increase in volume of transactions, conducting business has only become more complex. Further, lack of or a limited clarity in the legislations or direction from the tax authorities, especially in matters where multiple taxes are levied has led to increased litigation.

State Budgets from the Finance Ministers provide a platform for State Governments to bring out more clarity and facilitate ease of doing business in the State. Some of the key changes / recommendations in the Commercial Taxes in the upcoming Budget Session in Karnataka, have been listed below:

The time limit of five months to avail credit from date of invoice was introduced in the previous Budget, but the issue with regard to past periods remains unanswered. The amendment should be made effective retrospectively, which could put an end to pending litigation. The litigation around works contract transactions have only been increasing over the years. Necessary rules should be introduced to bring in more clarity in the manner of determining the taxable turnover in construction works contract, in cases where contracts with customers are entered at different stages of construction. Also such rules should provide for mechanism in the legislation for the value to be considered for deduction towards land (immoveable property), to arrive at the taxable turnover.

There has been significant increase in sales of goods through electronic portals. The Government should provide for rules to determine the point of taxation for e-commerce transactions, especially principles to determine the point of levy, jurisdiction, valuation, etc. Dealers with units in SEZ are facing challenges to get refunds from the department and therefore necessary clarity should be provided with regard to eligibility of dealers which are units in SEZ, to claim refund on tax paid on inputs used in provision of services which are exported. In line with the amendments in the neighboring state VAT legislations, it should also be clarified whether Service Tax payable on composite contracts (AMC, works contract) would form part of sale price/taxable turnover for levy of VAT. Lastly, introduce one-time Amnesty Scheme to facilitate non-registered dealers to get into tax net, which could also facilitate easy transition into the GST regime where its objective is to bring in maximum number of businesses under the Tax net.

With the intention to facilitate ease of doing business in India, Government could simplify the procedure for registration by restricting the number of documents required for registration and to do away with the requirement of having a resident Authorized Signatory/Director. With the objective of giving a boost to start-up companies and also as a step towards the broad based GST regime, necessary steps may be taken to prune the list of goods under Schedule V, where Input Tax Credit is restricted. As regards the input tax credit correlation, facility may be introduced to provide for real time upload of Annexures to VAT return, instead of tagging them with the return due date. The same would facilitate Dealers to verify mismatches and initiate the process at the earliest, to follow up with suppliers. Directions may also be issued on speedy completion/closure of the refund process, and to field officers for easy and faster clearances at the Check Posts.

Considering the above, the proposals made in the Karnataka Budget will give a confidence to the businesses that there is a clear focus on ease of doing business - through much more simplification and clarity, and also pave the way to move into the new GST regime with considerable ease.

 

The views and opinions expressed herein are those of the author and do not necessarily represent the views of KPMG International or KPMG in India or any other member firm