Cool Bihari: November 2009

Monday, November 09, 2009

Simplifying VAT- Bihar Model

Economic and tax reforms have helped Bihar in improving its overall investment and financial health of the state. This has also shaped financial discipline and administrative rehaul leading to better governance. Vital indicators in the state are indicative of this positive development. Another new reform is the new model for administering VAT, which would seek to provide a truly simple regime for small taxpayers and a complete e-governance solution for medium and large taxpayers.

FT reports

The Investment Climate Department of the World Bank has been working with the Bihar government on a tax simplification project for the past year. The purpose is to identify changes needed in tax laws, procedures, rules, forms and systems in the commercial tax department, to reduce compliance burdens for taxpayers and increase efficiencies in tax administration. The Bihar model seeks to further incentivize small, informal, non-taxpaying businesses to register for tax and join the economic mainstream by also providing help with other critical small business needs: access to finance, insurance and market information.

The proposal is to set up Laghu Kardata Seva Kendras that would, in addition to providing tax services to small taxpayers, facilitate loans from banks and financial institutions for the businesses that register for tax. The Kendras will also help small businesses get in touch with insurance providers and avail insurance services for their businesses. It is also envisaged that other services, such as provision of market information, would also be provided by these Kendras. It is proposed that these centres be set up as a public-private partnership, with a private or non-government organisation working with the commercial tax department to establish the Kendras.

Bihar model for VAT administration can be a very useful instrument of industrial and economic growth and generation of employment. Dr Asim Dasgupta is believed to have observed that it is an interesting proposal that could be followed by other states if it succeeds in Bihar. So, Bihar is pioneering an innovative approach in tax administration that other states could one day emulate. A truly wonderful example of how dynamic political leadership can bring moribund bureaucracies to life.