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Commercial Tax Part II: What goes on while registering a commercial unit?

To understand and assess where corruption takes place in the Commercial Tax department, ipaidabribe will be a doing a series of posts. But before that let’s delineate the various activities that the department undertakes:

Part I of this series covered how rampant corruption is, in the Commercial Tax department of Karnataka. In this post, we’ll examine how corruption takes place during the process of registering a tax paying establishment:

Any new commercial or industrial establishment needs to get itself registered within six months of its existence with the local VAT officer. One needs to submit an application form for registration. Once the registration form is submitted, then an inspector from the VAT office visits the premises and based upon his report, a final approval for registration is given.

Earlier, a manual system existed, and for each case a bribe was collected. It was not a large amount, Rs 2,000 per case. But an initiative named e-vardan in Karnataka caused a significant dent in this process of bribe related transaction. e-vardan helped facilitate submission of electronic documents, thereby reducing human intervention.

The resourcefulness of the corrupt, however, cannot be underestimated. The Assistant Commissioner from the VAT office can still say that he needs further information and convert the electronic system into a manual system. If that happens, then we are back to the good old times when a mamool is required for getting yourself registered!

Optimists will say that if everything is in order, then the site verification by the inspector should not pose a problem. However, this is rarely the case, because the rules are so complicated that a site inspector can raise any objection he wishes. For instance, where there are multiple offices in a single location, the inspecting officer can harass the applicants by nit-picking. If there are three companies in the same location, he can ask where the separate entrances are, and seek separate power and telephone bills for each establishment located at that address. Quite often, if the owners of all establishments are the same, then most often the telephone and power bills come under a common name. That is exactly the kind of shortcoming the inspector is looking for. He will take advantage of this weakness and demand a bribe. So in spite of e-vardan, there can be corruption in the registration process!

Here are a couple of bribe reports on the process of obtaining VAT registration, posted by citizens on ipaidabribe.com (Boxes 2, 3 & 4)

Box 2

Box 3

Box 4

A check with the Commercial Tax department of Karnataka indicated that such instances of bribe exchange can be reduced through the e-vardi software, which places VAT registration and the documentation concerned, on the Internet for all to see.