Goods and Services Tax Network – Concept and Challenges in Implementation

Background

Introduction of The Goods and Services Tax (‘GST’) is being
touted as a paradigm shift in the field of indirect tax reforms in India and
rightly so because it is expected to change the manner in which taxes are
administered and at the same time it will change the way business is conducted
in India. Two key outcomes expected after the introduction of GST is the
reduction of the cascading effect of multiple taxes and the creation of a
common national market. These outcomes are sought to be achieved by merging
several Central and State taxes into a single tax namely GST, parallelly, the
introduction of GST will also make tax administration transparent and easier to
administer.

By the time this article is published, GST will have come
into effect and India will have embarked on its journey to an integrated goods
and services tax regime.

Islands of data

With the introduction of GST there was a need for a mega
infrastructural support and IT infrastructure is a key component in this.
Before GST, the Centre and State indirect tax administrations have been working
under different laws, regulations, procedures and formats and consequently they
had independent IT systems. Needless to say, independent IT systems are small
islands of data – isolated from others and dis-integrated. Integrating them for
GST implementation and bringing them under an entirely new indirect tax system
and administration need fresh institutional arrangement. For this task, the
government has created Goods and Services Tax Network (GSTN).

Concept

The GST System Project is a unique and complex IT initiative.
It is unique as it seeks, for the first time to establish a uniform interface
for the tax payer and a common and shared IT infrastructure between the Centre
and States. Integrating them for GST implementation is a complex exercise given
that it entails the consolidation of all the tax administrations (Centre, State
and Union Territories) to the same level of IT maturity with uniform formats
and interfaces for taxpayers and other external stakeholders, only then an
indirect tax ecosystem will be created.

Besides the above, given that GST is a destination based tax,
the settlement mechanism amongst the States and the Centre for settlement of
taxes accruing from inter-State trade of goods and services (IGST) needs to be
robust. This will be possible only when there is a strong IT Infrastructure and
Service back bone which enables capture, processing and exchange of information
amongst the stakeholders (including tax payers, States and Central Governments,
Accounting Offices, Banks and RBI).

The Goods and Services Tax Network (‘GSTN’)

GSTN is a section 25, not for profit organisation owned by
government and private players jointly. GSTN has been entrusted with the
responsibility of building Indirect Taxation platform for GST to help tax
payers prepare, file, rectify returns and make payments of their indirect tax
liabilities. It is expected to be a one stop solution for all indirect tax
requirements, business will be able to manage tax easily. Unlike current
indirect tax, where there are multiple sites backed by provisions and
compliances, it is expected to become lot easier for the assesse and government
to track the status of returns and payments with the help of GSTN.

What are the functions of GSTN?

The GSTN as a back end infrastructural support mechanism has
the main responsibility of providing a robust IT infrastructure and related
services to the Central and State Governments, taxpayers and other
stakeholders, by integrating the common GST portal and connecting it to the
existing tax administration IT systems.

Administrative functions of GSTN

GSTN as a tax
administration platform will be inter-connected with the existing
administrative mechanisms. The common GST Portal developed by GSTN will
function as the front-end of the overall GST IT eco-system. The common GST
portal by GSTN will process applications for registration, payment, return and
prepare MIS/ reports.

Similarly, the IT systems
of CBEC (Central Board of Excise and Customs) and State Tax Departments (except
Model I states) will function as back-ends. The work of back-end operation is
to handle tax administration functions such as registration approval,
assessment, audit, adjudication etc.

Functions of GSTN

Following are the main functions
of GSTN:(i)      facilitating
registration;

(ii)    filing
and forwarding the returns to Central and State tax authorities;

(iii)   computation
and settlement of IGST;

(iv)   matching
of tax payment details with banking network;

(v)    providing
various Management Information System reports to Governments.

(vi)   analysis
of tax payers’ profile; and

(vii) running
the matching engine for input tax credit.

Relationship of GSTN with Tax Administrations

The common GST Portal developed by GSTN will function as the
front-end of the overall GST IT eco-system. The IT systems of CBEC and State
Tax Departments will function as back-ends that would handle tax administration
functions such as registration approval, assessment, audit, adjudication etc.
Various States and CBEC are developing their backend systems themselves. GSTN
is doing the backend for 20 States and 5 UTs. GSTN is interacting with CBEC and
States for ensuring mutual interaction between the front-end that would be
operated by GSTN and the back-ends of the tax administrations. During the
operation phase, as well GSTN will continue the interaction with CBEC and
states and extend help wherever necessary.

GST IT Strategy

The GSTN has been assigned the role of facing taxpayers and
these among other things include filing of registration application, filing of
return, creation of challan for tax payment, settlement of IGST payment (like a
clearing house), generation of business intelligence and analytics. All
statutory functions to be performed by tax officials under GST like approval of
registration, assessment, audit, appeal, enforcement etc. will remain
with the respective tax departments. The diagram below shows the work
distribution.

Role of GSTN with respect to Filing of Returns

Under GST, there will be common return for CGST, SGST and
IGST, eliminating the need to file separate tax returns with Central and state
GST authorities. Checking of claim of Input Tax Credit (ITC) is one of the
fundamental pillars of GST, for which data of Business to Business (B2B)
invoices have to be uploaded and matched. The Common GST Portal created and
managed by GSTN will do this matching on the basis of invoice level data filed
as part of return by all taxpayers. Similar exercise will be done for inter-state
supplies where goods or services will move from the state of origin to the
state of consumption and so will the taxes. The claim of IGST and its
utilisation will be settled based on returns filed at the Common GST portal.

Role of GSTN with respect to Registration Application

Under GST, the registration of taxpayers will be common under
Central and State GST and hence one place of filing application for the same
i.e. the Common GST portal. The application so received will be checked for its
completeness by the GST portal, which will also carry out validation of data
like PAN from CBDT, CIN/DIN from MCA and Aadhaar of promoters, if provided,
from UIDAI. After completion of validation, the registration application will
be shared with respective central and state tax authorities. Query of tax
authorities, if any and their final decision will be communicated to GST portal
which in turn will communicate the same to the taxpayer.

The Common GST Portal, as explained in brief above, will be
the single interface for all taxpayers from any part of the country. Only in
case where a taxpayer is picked up for scrutiny or audit, and such cases are
expected to be small in number, he will interface with the respective tax
authority issuing the notice under the Act. For all other cases, which is
expected to be around 95%, the Common GST Portal will be the only taxpayer
interface.

Access to Data

The design of GST systems is based on role based access. The
taxpayer can access his own data through identified applications like
registration, return, view ledger etc. The tax official having
jurisdiction, as per GST law, can access the data. Data can be accessed by
audit authorities as per law. No other entity can have any access to data.

Challenges

The challenges before the GSTN are daunting but not
unsurmountable. Challenges inter alia include:

–   Integrating multiple databases

–   Creating the IT environment and enabling all
the checks and balances/validation with a moving goal post (frequent changes in
law)

–   Collating data for more than 60 million tax
payers (existing and fresh) and issue registration numbers to all

–   Creating a single window for accepting
returns for all tax payers

–   Creating a facility for accepting invoice
level data on a month to month basis, storing and archiving the same for later
retrieval.

–   Creating and maintaining online credit
ledgers to receive and disseminate data to all stakeholders

–   Enable the online matching of credits and
reconciliation of mis-matches

–   Maintaining data integrity, confidentiality
and security.