DELHI VAT BUDGET PROPOSALS – 2013

(by Rakesh Garg, FCA)

A. Non‐Tariff Proposals in the Delhi Finance Budget, 2013

1. Online registration under the Delhi VAT Act and Central Sales Tax Act;

2. Uniform tax period for all dealers irrespective of their turnover, which will be “a quarter”;

3. Increase in Taxable Quantum from Rs. 10 lacs to Rs. 20 lacs;

4. Instead of submitting the hard copy of the entire DVAT return, dealers will file the signed copy of the acknowledgment, downloaded from the web‐site (Same practice as followed under the Income Tax Act);

5. If the dealer voluntarily admits its tax liability at the time of field inspection/survey and deposits the tax due under the Act – Mitigation of penalty up to 80%; and

6. A new Composition Scheme for Works Contractors, effective from 01.04.2013, has already been notified, which will replace the existing Composition Scheme.

B. Proposed Impact on Delhi VAT Rates

[Changes will take effect from the date of Notification only]

(20th March 2013)

Text of Budget Speech

(Tax Proposals relating to Value Added Tax)

Presented on 20^th March 2013 by

Ms. Sheila Dikshit, Hon’ble Chief Minister and Minister of Finance,

NCT of Delhi in the Delhi Legislative Assembly

[PART B]

100. Speaker Sir, let me now turn to my taxation proposals. Hon’ble members will be pleased to know that I do not propose to levy any new taxes or revise upwards rates on any item, in other words I am proposing a tax‐free budget. What I do propose is to make the taxation system simpler and to achieve important environmental and social goals by giving targeted relaxations to specified categories.

101. Streamlining the tax administration to facilitate compliance has always been our endeavour. I am happy to inform the House that Delhi was the first State in the country that has enabled the trading community to download Central Statutory Forms. This is a major step in increasing the efficiency and ease of doing business in Delhi. To further simplify setting up of business in Delhi and improving transparency, I propose to introduce a new facility of online registration under the Delhi Value Added Tax Act and the Central Sales Tax Act. This facility will reduce the physical interface between the Taxman and the Tax‐payer, who will no longer need to visit the Department. The entire chain of events including registration, filing of returns, payment of tax, downloading of Central Statutory Forms and Self‐Assessment will henceforth be effected online.

102. At the time when Delhi Value Added Tax 2004, was introduced, there were four tax periods i.e. yearly, half yearly, quarterly and monthly, based on turnover of dealers. In a phased manner, this tax period was earlier reduced to two i.e. quarterly and monthly. Now, I propose to keep a uniform tax period for all the dealers irrespective of their turnover, i.e. quarterly. This will facilitate the workload of dealers who were filing monthly returns. They will now have to file only four returns yearly instead of twelve returns. Additionally, the dealers will not be required to submit hard copies of the entire VAT Returns; instead they will file only the copy of acknowledgement of the Return downloaded by them, reducing their workload even more and also cost of compliance.

103. Sir, as a major relief to small traders, I propose to raise the threshold limit for Registration under VAT from ` 10 lakh to ` 20 lakh. As always, Delhi is the first State to do so.

104. Sir, we would like to encourage voluntary tax compliance. Raids and inspections should be the exception. To encourage dealers to voluntarily admit their tax liability, I propose that, subject to depositing the tax due, penalties upto 80% of admitted tax would be automatically mitigated, even in cases where field inspections are carried out.

105. Work contract dealers are required to maintain quite elaborate records for purpose of VAT compliance. Under a new composition scheme, which would come into effect from April 1, 2013, dealers would be allowed to pay a tax based on their overall turnover. The scheme allows work contract dealers to procure materials on strength of declaration forms and import them. Certain flexibility will be allowed to them to procure material from unregistered dealers. This scheme will definitely enable the Works Contract dealers to discharge their tax liability in a simplified and hassle‐free manner.

106. Sir, I had mentioned about our commitment to deal with solid waste. The item ‘Organic manure’ produced by processing of Municipal Solid Waste (MSW) is not taxable under the Delhi VAT Act. Further, to encourage rag pickers, waste like paper, plastic, scraps glass, etc. is not subjected to tax under the DVAT Act. Solid waste can be used for making Refuse Derived Fuel, which can be an input for energy production. RDF is presently taxed at 12.5%. I now propose to exempt VAT from Refuse Derived Fuel to promote its use.

107. Disposal of malba/ construction debris has also become a critical issue, as I mentioned earlier. In order to encourage the use of malba in the manufacturing of tiles and kerbstones, I propose to exempt such end products from the levy of VAT. Tiles and kerbstones not made from malba will continue to be taxed at 12.5%.

108. Sir, in the past we reduced VAT on Compact Fluorescent Light (CFL) as these are energy saving. Light Emitting Diodes (LED) Lights are even more efficient and environment friendly compared to CFL. The use of more LED lights will save power and also help to improve the environment. Therefore, I propose to reduce the rate of tax on LED lights from 12.5% to 5%.

109. Sir, it is our duty to empower women by way of self‐defence and for that purpose, I propose to exempt chilly spray used for self‐defence, presently taxable at 12.5%, from the levy of VAT.

110. The items Singhara, Kuttu and their atta, Sendha Namak are used by people during fast. Respecting their religious sentiments, I propose to exempt these items from levy of VAT.

111. For the welfare of children, I propose to exempt VAT on empty pencil/geometry box and also on charki and manza used for flying kites; all these are presently taxed at 12.5%.

112. Holi is just round the corner. The use of chemical gulal and other colours is harmful to the health of the people. To encourage use of organic gulal and organic colours, I hereby propose to exempt these items from the levy of VAT.

113. Footwear (rubber/plastic/Rexene) having MRP less than rupees five hundred for per pair is not taxable under the Delhi VAT Act. The poor also use hawai chappals and other category of shoes, which are taxed at 5%. I, therefore, propose to bring all types of footwear having MRP upto rupees five hundred in the exempt category provided that the MRP is indelibly marked or embossed on the footwear itself.

114. Desi Ghee attracts VAT @ 12.5%. Butter, being a substitute of Desi Ghee, is being charged VAT @ 5%. Thus, I hereby propose to reduce VAT on Desi Ghee from 12.5% to 5%.

115. Sir, as would be clear, our drive has been to establish a simplified taxation regime that is broad‐based and encourages voluntary compliance. Conscious of the need to raise resources for the growth and development of Delhi, I have yet tried to lighten the load to serve larger societal imperatives.

116. Sir, I commend the budget for consideration of the House.

VAT administration reform enables online registration and simplified returns, with threshold increase and penalty mitigation for voluntary disclosures. Proposals enact administrative simplification and targeted tax relief: online registration and full online compliance; a uniform quarterly tax period; raising the VAT registration threshold; filing only a downloaded signed acknowledgement instead of full hard copy returns; penalty mitigation up to eighty percent for voluntary admission and deposit of tax during inspections; a new composition scheme for works contractors allowing turnover based tax, use of declaration forms and limited procurement from unregistered dealers; and selected exemptions and rate reductions to advance environmental and social objectives.