In a proposal to the Finance Department, the CTD said, the task of analysing tax structures should be carried out by the International Finance Corporation (IFC), which is already engaged by the department to chalk out other reform measures.
"For the year 2014-2015, IFC should focus on the aspects related to tax rates, both within the state and vis-à-vis neighbouring states and (should) study the processes/procedures for providing incentives/subsidies etc to SMEs in the industrial policy," said Manoj Ahuja, commercial tax commissioner in a proposal to state Finance Department last week.
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The study of tax structures should make an effort to identity sectors whose competitiveness was affected solely on grounds of tax distortions. Similarly, the incentives and subsidies to be proposed by the study for small industries should also ensure that the expedition of these process are timely and hassle free as 'not being able to avail the incentives is also a cost to the enterprises', Ahuja added.
The IFC is already studying the cost of compliance of tax reforms for the CTD. The study conducted for 2013-14 found out that the compliance cost for tax collection in Odisha is Rs 9,014, compared with Rs 15,530 in Bihar and Rs 25,178 in Rajasthan.
The tax department said, a host of reform measures initiated by it has resulted in lower compliance cost.
To prevent tax evasion and fraudulent activities, the department has formed an Economic Intelligence Unit (EIU) and also centralised computer based e-scrutiny and risk profiling of dealers. It also undertook several other steps such as e-refund, e-NDC, e-VC and e-TDS. Other IT-based steps have also been taken to increase administrative accountability and efficiency.
Besides, the CTD has proposed several changes in the statute to improve tax administration and the environment for business.
As the cost of tax compliance has come down, the department said, IFC must be engaged in undertaking other studies to help out the department in making new policy initiatives.
"With the further reforms being undertaken by CTD, the cost of compliance would further come down and supports or study by IFC of processes is not required as it will not result in any further significant reduction in compliance costs. There is a need to define the study for IFC to make it more objective and result oriented," the tax commissioner said.
In its study report regarding system of tax collection in Odisha, the IFC has proposed that an across the board set of recommendations be made on reforming the VAT (value added tax) structure. The agency also said there is room for reform in providing VAT clearance certificate.
The commercial tax department said the it is working upon the recommendations made by the IFC.