India: Goods And Services Tax Network

Last Updated: 7 January 2016
Article by SKP  

As India moves closer to adopting the Goods and Services Tax (GST), it is imperative to build a strong IT network which can integrate India's indirect tax data from across the country and process the data on a real-time basis.

The proposed solution for such a task is the GST Network (GSTN). The GSTN, as proposed, will act as an IT backbone for GST.

The Empowered Committee of State Finance Ministers first set up an Empowered Group on IT infrastructure for GST headed by Mr Nandan Nilekani on 26 July 2010. This was followed up with the incorporation of a 'Not for Profit' section 25 non-government company on 28 March 2013. The GSTN company has primarily been set up to monitor IT infrastructure and services to the central and state governments, taxpayers and other stakeholders, for the implementation GST in India.

The government awarded the GSTN development contract to Infosys for INR 13.8 billion. It will be a five-year contract post the GST implementation. Infosys has previously worked with the government on the Ministry of Corporate Affairs' digitisation process. Being a top tier IT private entity, they can easily leverage their vast pool of experience with the government and other tax authorities to meet the required deadline of 1 April 2016.

Information flow under GSTN

The GSTN could be a key factor in ascertaining whether or not the GST regime will effectively lead to transparency and ease of doing business in India, compared to the current indirect tax regime.

Although the final GSTN model has not been made public, various committees have presented their models to demonstrate how GSTN should ideally function. One such report submitted under the guardianship of Mr Nandan Nilekani in 2009 represented an ideal GST IT system. The report proposed tax autonomy for states and also proposed to prevent adverse tax leakages from the system.

A figurative model of the information flow proposed in the report is given hereunder:

*As per the recommendation of the Empowered Group on IT infrastructure on GST

The proposed GST IT system identifies four major stakeholders along with the GST portal

  • Taxpayer
  • Banks (RBI and other Banks)
  • States and
  • Central Agency (represented by CBEC)

Information flow as per the proposed report

  1. The taxpayer files the GST return with the GST portal;
  2. The taxpayer pays GST to the bank and uploads the challan details to the GST portal (there is no actual movement of funds taking place within the GST portal);
  3. The GST portal keeps a copy of the GST return for analysis and then sends the GST return details, in near real-time, to the respective state and the Central Board of Excise and Customs (CBEC) for further legal scrutiny;
  4. The state and CBEC then provide an intelligence report to the common GST portal which crosschecks the details of the GST return filed by the taxpayer and then confirms them;
  5. The common GST portal then reconciles the assessed GST liability with the challans;
  6. A match of assessed GST liability with challans paid shall be a closure of assessment and mismatch of the same will lead to intimating department officials about the default.

Simultaneously, the fund flows could be mediated with the help of the Reserve Bank of India (RBI) and structured in a way that the State GST (SGST) funds of the states are directly transferred from the taxpayer to the state treasuries and Central GST (CGST) funds directly move to the Centre. The RBI could help compute inter-state settlements. IGST could then be further settled between the states and Centre by RBI.

Goals of the GSTN

As GSTN tends to bind indirect tax data across the country, it shall also achieve the following goals in order to streamline business processes in India:

  • Simplification: Simplify the process for taxpayers by creating a uniform process of filing returns.
  • Cost reduction: Lower compliance cost and collection cost.
  • Reduction in tax evasion: Minimise the risk of tax evasion and reduction in leakages due to the smooth flow of information between the Centre and states.
  • Automation: Digitise and automate processes through e-registration, e-payment and e-return.
  • Credit availability: Enable a smooth flow of credit by the government on the basis of returns filed and revenues reconciled against challan data from the bank.
  • Uniformity: Create uniformity in policy administration.

Road Ahead

The GSTN is an important thread that will bind the indirect tax IT systems of all states with the Centre. Unfortunately, barring a few, many states are yet to automate their indirect tax procedures. Ideally, the states have to start upgrading their IT systems as early as possible to reach the level of sophistication in processes and procedures required for GSTN in the near future.

Internationally, Malaysia has been the country to have most recently adopted GST. Although the Malaysian government had given a significant time frame for industries to implement GST, most had not updated their software for complete GST compliance. There were various apprehensions at the operational level regarding GST implementation which aggravated post-implementation problems.

Given the required technology upgrade, the industry must take appropriate measures to train themselves and their vendors to make sure there is no leakage of credits.

Thus, the industry has to get acquainted with the IT systems in order to ensure a smooth transition from current indirect tax procedures to procedures under GSTN.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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