Getting GST up and running

One of the biggest challenges for the timely implementation of the Goods and Services Tax (GST) from 1 April, 2017 rests on the quick roll-out of the Goods and Services Tax Network (GSTN) programme and the preparedness of estimated seven million taxpayers to interact with it. This is going to be a huge logistical challenge.

What really is the GSTN? It is a Section 25, non-government, private limited company incorporated on March 28, 2013, with a government shareholding of 49 per cent and with private financial institutions having a shareholding of 51 per cent.

Once rolled out, the GSTN will provide a common platform for registration, return filing and e-payment. The objective of the GSTN is to provide a shared IT infrastructure to all GST stakeholders. It will integrate the Common GST portal with the tax administration systems of the centre and States.

The GSTN will help build effective and convenient interfaces for taxpayers, assist authorities in plugging tax evasion, promote best practices and provide training to stakeholders.

More importantly, GSTN will assist States who do not have requisite IT capabilities by providing them with back-end modules to be used by State tax officials to perform statutory functions.

For the smooth roll-out of the GSTN in the first phase, the three core processes of registration, payment and submission of returns will be required to be operationalised and made available to all the seven million taxpayers.

Under the scheme visualised for registration, there will be a migration of existing taxpayers to the new system which will lead to allotment of the GST Identification Number (GSTIN).

Needless to mention, nobody, with turnover above the GST threshold, can carry out business after the roll-out date without a GSTIN — which would be a 15-digit alphanumeric code based on the Permanent Account Number.

The new entities will have to apply for fresh registrations and obtain GSTIN. Every registrant after the validation of the PAN number with the income-tax database will be assigned online a GSTIN, a user ID and a password. This will allow that the taxpayers to use the GSTN systems.

The scheme for returns requires all returns to be submitted to the GSTN system. There will be common return formats for taxpayers all over India. As part of return filing process, taxpayers would need to reconcile their purchase transaction with those reported by their vendors to be able to avail input tax credit. GSTN will facilitate this by automatically creating purchase register for taxpayers based on supply transactions reported by their vendors.

The payment scheme of GSTN will enable payment of GST through a variety of modes such as internet banking, debit and credit cards, over the counter (OTC) payment in agency banks and payments made through RTGS/NEFT from other banks. This will involve integration of the GST system with various agency banks for internet payments and multiple gateway operators for card payments.

The development of the GSTN system was entrusted to Infosys in September, 2015. It is widely expected that a working prototype would be made public before the end of this year.

The taxpayers can interact with the GSTN system in three ways:

Direct access to the website of GSTN

Access through GST Suvidha Providers (GSPs) who will in turn use secured channel to access the GSTN system – these GSPs are expected to provide value-added services apart from regular compliance services

Large companies could make their own arrangements using GST approved IT protocols to access the GSTN system The GSPs would have a critical role to play by handholding the small and medium businesses and facilitating GST compliance for them.

Existing accounting software companies such as SAP and Tally will have to come on board. There may also be a place for start-up companies to join in this effort. These companies will have to be licensed and aid the taxpayers in their interaction with the GSTN.

Taxpayers will have to get their vendors to interact with the GSPs or get their own IT to understand how the three core processes of registration, payment and returns would work without any hitches. Leading trade associations can play their part in interacting with the GSTN and act as information providers to their constituent members.

Finally, every company would have to put in place a business process engineering group which will have to work with the IT team in the company to be ready for GST. As a starting point, taxpayers should seek answer to the following key challenges:

How would interaction with the GSTN system happen?

How would information such as Place of Supply, HSN/Service Accounting Code, etc. in invoice will be captured?

How would purchase register created by GSTN be reconciled with the purchase register in taxpayers’ accounting system?

How would taxpayers keep track of credits (GSTIN-wise) and utilise them in the optimum way?

How many applications within taxpayers’ IT landscape need to be modified and to what extent?

Can we pull off this ambitious technology challenge?

Two events in the past lend some confidence: Electronic voting machines were successfully installed and used in the elections in Uttar Pradesh and Bihar; and the second, the Aadhaar project, delivered a unique biometric identification and number to 1,000 million Indians out of a total population of 1,250 million. These projects were executed against all odds.

We are a boisterous democracy, but we do have the ability to pull off this audacious technology challenge if there is national focus combined with political will.

The writer is Advisor, Tax Policy Group, EY. With inputs from Kalyan Kumar Pal, Director, Tax & Regulatory Services, EY