Written in : September 1998

A new scheme for taxpayers - the Kar Vivad Samadhan Scheme (KVSS) - is now on. It has started from September 1. In this and the next few articles we shall discuss the various facets of the Scheme. Perhaps you might find it useful.

The main purpose of the Scheme is to reduce pending litigation, and more importantly, tax arrears. Litigation - and avoidable at that - has been the scourge of the tax system. The finest brains in the country - which can be put to good, productive use - are permanently engaged in unproductive litigation in tax matters.

Over 42,000 crore rupees - just pause and think about that figure - are stuck up in pending cases about taxes.

No one believes that this is a desirable state of affairs. Yet it so remains, because of the manner in which our lawmakers make and draft our laws, the manner in which our taxpayers use and misuse them, and the manner in which our tax departments administer them. One more reason for such arrears is the unreasonable and extortionate tax rates that existed in the past which made it very difficult for taxpayers to be honest.

This scheme is an answer, howsoever insufficient, to this situation.

The purpose of this scheme, therefore, is two fold: to reduce pending litigation and to reduce tax arrears.

Basically, the scheme allows pending tax arrears and litigation to be resolved at a discount with promises of amnesty from interest, penalty and prosecution.

Thus, if you have

• outstanding tax arrears, and
• pending litigation involving such arrears:

• make a declaration for summary settlement
• pay taxes which can be a small part of the outstanding arrears, and
• and get immunity (partly or wholly) from interest, penalty and prosecution.

If you do not have outstanding tax arrears, then this Scheme is not for you and you can skip this and the next few articles.

Coming just a year after the VDIS, comparison of KVSS with VDIS is inevitable. While we shall discuss, at appropriate times, the similarities or differences between the two, let us understand that KVSS is not another voluntary disclosure scheme. It does not allow you to disclose undisclosed income. However, there are similarities and we shall look into them.

KVSS is applicable to both direct and indirect taxes, unlike VDIS which was only for income tax. The list of taxes which KVSS covers is long.

The direct taxes covered are: income tax, wealth tax, gift tax, interest tax and expenditure tax.

The main indirect taxes covered are central excise and customs.

In addition, some 28 other taxes, duties or cesses are covered. These are levies under: Agricultural Produce Cess Act, Coffee Act, Mica Mines Labour Welfare Fund Act, Rubber Act, Sale Cess Act, Medicinal and toilet Preparations (Excise Duties) Act, Additional Duties of Excise (Goods of Special Importance) Act, Mineral Products (Additional Duties of Excise and Customs) Act, Sugar (Special Excise Duty) Act, Textiles Committee Act, Produce Cess Act, Limestone and Dolomite Mines Labour Welfare Fund Act, Coal Mines (Conservation and Development) Act, Oil Industry (Development) Act, Tobacco Cess Act, Beedi Workers Welfare Cess Act, Additional Duties of Excise (Textiles and Textile Articles) Act, Sugar Cess Act, Jute Manufacturers Cess Act, Agricultural and Processed Food Products Export Cess Act, Spices Cess Act, The Industrial Development and Regulations Act, The Tea Act, The Sugar Export Promotion Act, The Marine Products Exports Development Authority Act, other acts levying auxiliary duty of customs or special duty of excise. I did not know, till I read this list, that there are so many different levies which we have to suffer.

What are not covered are the old estate duty, surtax, R&D cess etc.

This column is primarily intended for the direct taxpayers. So, my discussion shall remain focussed on direct taxes. However, we shall also briefly discuss how it can be used for indirect taxes.

The scheme has started from September 1 and ends on December 31, 1998. That is, you can make a 'declaration' under the scheme between these dates. However, as we shall see, you can get time up to March 31, 1999 to pay the taxes.

Will the Kar Vivad Samadhan Scheme be as successful as the Voluntary Disclosure of Income Scheme of last year? Keeping our fingers crossed, we can only wish the government well.

However, one question is whether the government is going after it as strongly as it did on VDIS.

You might have seen the first of the series of KVSS ads in the newspapers in the last few days. Did you notice the contrast between these ads and last year's VDIS ads? The KVSS ads are nowhere as slick, hard hitting or with as much recall value as the VDIS ones. The reason is obvious: the VDIS ads were done by professional ad agencies; the KVSS ads are released by DAVP, a government department. It is amazing that even after the huge success of the ad campaign of VDIS, the government has used DAVP for KVSS ads. Why do we really refuse to learn?

If the ads are any indication, then the government's efforts seem wanting in comparison with those in VDIS.