As a part of Budget 2005-06, Finance Minister P. Chidambaram introduced the concept of large taxpayer units (LTUs) as a single window, self-contained tax administration framework under the Department of Revenue, to handle all matters relating to central excise, income tax/ corporation tax and service tax. It was proposed that taxpayers would, among other things, be able to file their excise, direct tax, and service tax returns at the LTUs and, for all practical purposes, assessed there for all such taxes. The objective was to reduce compliance burden and transaction costs for large corporates, and bring in efficient tax administration.
The establishment of LTUs follows the precedent set in other countries including Australia, the Netherlands, New Zealand, the UK and the US, where tax administrations have been organised to cater to multiple types of taxpayers.
Following the Budget 2005-06 proposals, LTUs have been established in four cities — Bangalore, Delhi, Mumbai and Chennai, with a fifth unit planned in Kolkata.
Taxpayers assessed in a city where an LTU is located, and who have paid excise duty or service tax exceeding Rs 5 crore or income tax above Rs 10 crore can register with the LTU. The application process is relatively simpler and involves filing a consent form. No new registration is required. On registration, a single-point client executive from the Revenue Department will be appointed for each taxpayer.
While minimum monetary thresholds are prescribed for registration, use of LTUs remains optional. At the end of 2011-12, 174 entities were reportedly registered, accounting for 14 per cent of the total direct tax and 11 per cent of indirect tax (excluding customs duty) revenues. However, a large number of eligible corporates have stayed out of the LTU. There is talk that the Finance Ministry may gradually mandate registration for large taxpayers above a certain threshold limit.
The option of exiting from the LTU, and the process for it is not set in stone. A letter is seemingly enough to seek transfer to a regular range. This, however, should be done at least 30 days prior to the financial year-end.
The success of the LTU will largely depend on how well its officers understand and respond to the needs of large corporates, the framework in which such corporates operate, and the processes and controls adopted in a large-scale environment. The general outlook of a country’s tax administration, and its attitude towards overseas investors (whether strategic, private equity, sovereign or institutional) are the key aspects evaluated by potential investors. It is, therefore, crucial that the LTU is perceived as a high-quality tax administration forum with well-trained professionals equipped to understand the complexities of large corporates. This will help create an environment that offers consistency and clarity in tax administration.
A review to identify areas of improvement in an LTU may be a useful first step.
Sriram Ramaswamy, Associate Director - Tax & Regulatory Services, Ernst & Young
Jayesh Bavle, Senior tax professional, Ernst & Young, contributed to the article.