Srinagar, Jan 21: The Kashmir Chamber of Commerce and Industry has suggested the Power Development Corporation to raise capital in the primary market by way of public issue. It has said that the corporation, after fulfilling the requisite formalities, can go for Initial Public Offering through the fixed price method, book building method or a combination of both.
 At a pre-budget meeting with finance minister Abdul Rahim Rather the chamber said the public issue would help the state to mobilize enough of resources for power generation in the state.
 While attributing the backwardness of the state to the energy deficiency in J&K, the chamber put forth a host of suggestions to the government to be incorporated in the upcoming budget for the economic development of the state.
 For the interest of our readers we are carrying the excerpts of the document the Chamber presented to finance minister as under:

1. SPECIAL ECONOMIC ZONES (SEZS):-
 As your goodself knows that economy-wise, Kashmir is without doubt one of the least-developed states in the region and as such special measures are required to put our economy on track for development and growth. Across the world, the SEZ model for industrial and urban development has been used to great effect. International institutions like the World Bank, United Nations Industrial Development Organization (UNIDO), International Labour Organisation (ILO) and the United Nations Conference on Trade and Development (UNCTAD) have played an important role in creating and legitimising the concept of  Export Processing Zones (EPZs). China has successfully established the SEZs, the most successful being  Shenzhen which has developed from a small village into a city with a population over 10 million within 20 years.
 The policy measures in this regard would broadly fall in the following two categories:-
Fiscal incentives such as:
* Tax Relief; and
*Fewer restrictions on investments, particularly foreign investments.
Non-fiscal incentives such as:
* Single window clearance, thereby reducing the time and cost of setting up operations; and
* Government assistance in obtaining land, utilities and permissions.
 The setting up of SEZs in Kashmir would provide the required stimulus to the State’s economy besides creating jobs and raising our standard of living. Other benefits of SEZs include the stimulation of key sectors considered to be stragically important to the economy, for instance tourism, infrastructure  and human resource development.
 Tourism being one of the most important sectors of our economy, sector specific SEZs can be set up  for development of Tourism/Recreational SEZs in Kashmir.
2. POWER PROJECTS:
* Despite being potentially so rich in water resources, our State suffers huge losses on account of restrictions imposed because of the Indus Water Treaty. The KCC&I has, in line with the Rangarajan Report  recommendations been urging for the reversion of all power projects back to the State.  The State Government needs to effectively take up this issue with the Central Government so that our economy could benefit from the proper utilization of our natural resources.  The expenditure on import of power could be drastically cut due to this step and the savings used for development in the State. The  agreements executed by the State Government with NHPC also need to be reviewed in this light so that the transfer of projects is not delayed due to legalities.
* The generation cost per unit of Salal project is 0.25 paisa and similarly generation cost from Uri project is also around this figure only. Till the time the projects are handed back to the State it would be in the fitness of things that the consumers are charged actual costs.
* The KCC&I strongly disagrees with the terms and conditions in the memorandum signed with NHPC in which the NHPC has been given a share of “..not less than 49%” and the State through the JKSPDC will have a share of “…not more than 49%”. Apparently such ambiguous technicalities are meant to put the State in an legally disadvantageous position and deprive us from the benefits of these projects. The State Government has not retained any effective control over these projects and consequently all benefits accruing from these projects have been given away. Better terms could be explored by inviting of global players of hydropower which would be highly beneficial for the State.
* Tie-ups with the private sector will definitely be more beneficial for the State so that we are in a position to not only have enough free power for all our requirements but at the same time have enough revenue generated for the State.
* The private sector should liberally be financed by the Financial Institutions in the State having role of  venture capital providers also particularly for local entrepreneurs who are interested to set up such projects.
* Uninterrupted power supply for industries particularly the Cement industry need to be ensured. The absence of continuous power supply, especially in the industrial areas, has adversely affected the industrial sector and several units are on the brink of closure due to this reason. The State Government needs to ensure, as a matter of policy, that adequate power supply is given to the industrial areas so that the fragile industrial sector of our State is not affected adversely.
3.  TRANSMISSION & DISTRIBUTION LOSSES/NON PAYMENT OF DUES:
 As pointed out in your previous budget speech, the gap between the expenditure incurred on purchase of electrical energy and revenue collected has reached a whopping Rs 1,406 crore. This figure has now reportedly crossed Rs.2,000 crore upto ending December, 2009 for the current financial year with three months still left. This gap needs to be strictly controlled through a proper system for reduction of transmission and distribution losses. Private Distribution Companies  have invested heavily in latest technologies like SCADA (Supervisory Control and Data Acquisition System) in Delhi costing Rs 153 Crores to control such losses.
 Apart from these losses, the State Government needs to knock at the doors of the security forces who have been using free electricity at the cost of the State Exchequer. The list of defaulters on account of Power dues mainly constitutes of Government Departments and efforts are required to be made for recovery of these dues.
4. PUBLIC ISSUE OF THE POWER DEVELOPMENT CORPORATION:
 This should be one of the most important initiatives of the State Government which will have the potential of generating huge revenues for the Government by tapping our hydro power resources.
5. ECONOMIC ADVISORY COUNCIL:
 The KCC&I had also previously urged the formation of an Economic Advisory Council which would convene  monthly meetings in which Chairman, J&K Bank, Regional Managers, Punjab National Bank and State Bank of India as well as Economic Advisors and Presidents of two chambers viz The Kashmir Chamber of Commerce and Industry and Jammu Chamber of Commerce and Industry alongwith Chief Secretary, Commissioner/Secretary, Finance Department, Commissioner/Secretary, Industries and Commerce Department could meet for any intervention which we foresee may be needed to take care of any economic problem urgently as is being done at the national level.
6. SINGLE TOLL PLAZA AT LOWER MUNDA:
 The dual checking of goods being imported into the State has been a source of harassment for the trading community of Kashmir since long. This system of having a check point at Lakhanpur which is 400 kms away from the Capital City is unique to Kashmir and is an major impediment in the free movement of Goods. The present condition at Lakhanpur was aptly summed up by your goodself in the previous budget speech as being “…a chaotic, disorderly and congested commercial place..”. The unabated harassment in the shape of seizures, imposition of penalties/securities etc at Lakhanpur has scared the trader from Kashmir from importing goods directly. By creating such impediments for Valley bound goods, the Sales Tax Department has forced the opening up of all major depots in Jammu region and consequently the local trader is left with no choice but to purchase from Jammu. This has also unbalanced the collection of revenue from both the regions of the State.  
 The Lakhanpur Check Post needs to be kept exclusively for Jammu bound goods as the Lower Munda Check Post is already functioning for Kashmir. The Lower Munda Check Post should be upgraded so that import of goods to Kashmir is catered to by this Check Post. For the upgradation and development of the Lower Munda Toll Plaza, an allocation of Rs.10 crore should be earmarked in this financial year.
7. In order to compensate traders for losses incurred during the Amarnath Yatra agitation there is a justification of reduction of VAT to 50% on all commodities for a period of one year as a subsidy for traders to recover the losses. Alternatively, an subsidization of interest to the extent of 50% for traders having bank cash credit limits/loans has also been demanded by the KCC&I from time to time. This also needs to be addressed by keeping an allocation of at least Rs20 crore in this financial year.
8. SALES TAX AMNESTY SCHEME:
 In your previous budget speech, a scheme of general amnesty for cases where traders had been penalized for non-compliance of rules was announced which was to be notified. The issuance of the said notification needs to be expedited.
9. FORMATION OF TRIBUNAL:
 VAT is an account intensive tax regime and it is a well known fact that basic principles of accounting are neither followed nor understood at all the levels of the department. In such scenario it is imperative to have a panel of Chartered Accountants on the Tribunal on similar lines as is prevalent in the Income Tax Act to assist the Tribunal.
10. MISUSE OF EVEN SALES:
 The misuse of even sales must be prevented through a proper mechanism to avoid revenue loss to the State Government. Traders who import goods for contracts are being charged service tax on whole of the contract i.e. cost of material imported plus cost of labour even if the goods attract a tax rate of 12.4% they pay only 8.4% hence avoiding 4% of tax on the goods imported by them. The KCC&I recommends bifurcation of contracts whereby full rate of tax should be levied on goods imported and 8.4% service charges on the labour part of the contract. This loophole puts the local traders at an disadvantage and needs to be redressed. Further, it is strongly suggested to allow output tax credit to the contractors who purchase locally, so that they are not taxed twice. Currently contractors who purchase locally are paying VAT and then Service Tax too. This step could generate substantial revenue for the Government at the same time relieving dealers/contractors from the burden of double taxation.
11.  REVIEW OF THE VAT REGIME:
 Although J&K has been described as one of the best VAT implementing States by the Empowered Committee of State Finance Ministers yet the conditions prevailing for the assesses’.
i) The claims of VAT being a trader friendly regime with more stress on self assessment are belied by the conduct of the department. The KCC&I has received a large number of complaints regarding the regional disparities in the implementation of VAT in the State. Whileas the filing of quarterly return is a fairly simply procedure in Jammu where the trader simply files the prescribed return form, here the traders are grinded by demanding all documents like Purchase Statement, Sales Statement, Tax Input Statement, Output Statement and any other document the concerned officer can think of.
ii)  In Kashmir, the Commercial Taxes Department is also reportedly demanding Rs.5,000/- for every insertion which is not a requirement in Jammu. In your previous budget speech you had kindly agreed that the demand of traders in the following words:
 “…registering authority can demand, at its discretion, additional security from the dealers , on eventualities of the existing dealer adding more commodities to its approved list etc. A representation has been made that no such additional security should be demanded in cases where the existing dealers have been regularly filing their returns and depositing the VAT amount without any default. The demand is rational and if accepted, shall amount to due recognition for law abiding dealers. I accordingly accept this demand. The rule shall be modified accordingly…”
 Despite this assurance from your goodself, the Department is still extracting additional securities on every pretext including the one stated above. The fixing of security for fresh registrations is also a matter of concern as complaints of disproportionate fixing of security are also being regularly reported.
iii) Under section 69 (k) the penalty is “for default specified in clause (k) a penalty equal to ten times of the tax payable on each such default or rupees ten thousand whichever is higher”. This section has been the basis for imposition of penalties amounting to lakhs of rupees per trader which has virtually destroyed several businesses in the Valley. The KCC&I strongly advocates that such stringent sections are not required and need to be removed from the VAT Act.
iv) Under section 60 if the audit report is not submitted by the assesses in time, a sum of penalty equal to 0.25% of the turnover can be imposed which needs to be relaxed with a token penalty of Rs.1,000 keeping in view the conditions prevalent in Kashmir as also the absence of the facility of  e-filing of returns.
v) Audit Assessment/Scrutiny Assessment: 
 In many cases, the assesses’ are also subjected to both the methods of assessment available with the department namely the Audit Assessment and the Scrutiny Assessment. This needs to be corrected and either one method needs to be applied.
vi) Imposing Taxes on Credit Notes :
 In order to meet the revenue targets, the Commercial Taxes Department has lately started imposing tax on credit notes which cannot be considered as purchases as its price variation or differentials of the price charged by suppliers. Officers incharge are reassessing the already certified accounts of the assesses’ arbitrarily. Such amount in shape of credit note received by assesses’ are neither profits nor part of purchases. Hence this action by the assessing authority is totally unwarranted on the basis that  the accounts made audited and certified by the chartered accountants.
vii) Transition from Sales Tax to VAT Regime:
 When this transition was done the department had given assurance to trade that the application of penalties etc.  will be relaxed for initial one or two years. Presently many cases have been reported to us where penalties are being imposed on technical grounds which need to be waived off with a One Time relaxation in such cases for the first few years of operation so that assesses are in a position to pay the principal amount of tax.
viii) On-line Returns:-
 It is important that the Sales Tax department be computerized so that all assesses are  given the option of submitting their returns online. This would go a long in redressing the numerous problems arising out of frequent interaction between the traders and the Department. This will also save a lot of man-power on both sides. Although automation of the Department had been initiated at an cost of Rs 20 crore as per your earlier budget speech, there has been no visible change on ground. 
12. TAKING BACK LAND FROM ARMY/ PARAMILITARY FORCES IN COMMERCIAL AREAS:
 Previously also our Chamber had suggested that Army/Paramilitary forces should be shifted from important commercial areas like Tatoo ground, JKLI Land, opp. Iqbal Park and this needs to be put to commercial use which would also give revenue to State.
13. SPECIAL FUNDS FOR KASHMIR BRAND:
 The development of Kashmir Brand requires the intervention of the State Government by way of funds and land for creating facilities of testing, branding and certification of Kashmir Brand Products. For this purpose, an allocation of at least 3 crores should be earmarked in this financial year
14. CONNECTIVITY:
 It is important that  the Government  allocates special funds for roads particularly in economically important areas like our industrial areas. These areas suffer from having the worst road connectivity where a mere 8 kms from the National Highway  takes a person 1 hour to cover. By this example you can imagine how trouble some it is for industrial unit as well as for transportation of finished goods from these areas and as such it is very difficult to operate in these areas. These need to be funded urgently.
 All important areas of tourism old as well as new  should have road connectivity  of the highest  standard.  Old tourist spots like Gulmarg, Pahalgam, Sonmarg should have four lane roads and in the new areas like Yusmarg, Dodhpathri  the State  Government  through the  Development  Authorities should first build up the infrastructure of roads etc..

Lastupdate on : Wed, 20 Jan 2010 21:30:00 Makkah time
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