GST's network effect

The upcoming Aerocity complex, dotted with construction cranes on mammoth half-finished building sites and the neon signs of global hospitality brand names near Delhi's showcase Terminal 3 airport, is almost an appropriate symbol for the work-in-progress that is the goods and services tax (GST).

As politicians argue fiercely and persistently over the nitty-gritty of this long-awaited and ambitious indirect tax reform that promises to make India a common market, the organisation responsible for creating and managing the complex IT backbone that will make GST operational, the Goods and Services Tax Network (GSTN), has moved, without fanfare, into glitzy new headquarters at Worldmark I, part of a vast commercial multi-storey chain owned by Sunil Mittal-promoted Bharti Realty.

The 30,000 square foot space that GSTN occupies on the fourth floor couldn't be a bigger contrast to its cramped quarters in Hotel Janpath in central Delhi, a temporary base of operations after it was incorporated in March 2013. There is little to suggest that this Section 25 (not-for-profit) company is a government organisation in which the Centre and states hold 25.5 per cent each (a clutch of banks and private sector institutions hold the rest).

With its carefully delineated spaces, clean lines and such stylish trimmings as jazzily coloured "breakout rooms", a canteen where it is compulsory for all staffers, chairman downward, to eat, and a "ladies' room" for expectant mothers to rest, this could readily be mistaken for the office of a PE/VC-funded IT start-up run by a 30-something entrepreneur. The ambience is not accidental either. As GSTN Chairman Navin Kumar had told Business Standard a year ago, "The idea is to create an entity that is under the strategic control of the government but will have the flexibility of the private sector."

As if to highlight the difference, a racy blue, red and green logo, created by the National Institute of Design, adorns a banner at the airy reception area and the visiting cards and stationary. These are only the outward signs of the solid, if low-profile, progress the organisation has made to get the IT infrastructure ready for when this long-delayed tax becomes a reality. A world away from the din of political rhetoric over rates, the shape of the law, minimum applicable thresholds and, most recently, the prospect of a 1 per cent inter-state tax, GSTN has made some robust progress.

The latest buzz is that the critical constitutional amendment to enable the collection of this centralised tax could well be passed - finally - this Budget session, and once the state Assemblies pass their individual amendments, GST will be ready to roll out in either October 1, 2016 or April 1, 2017. Either way, "the system will be ready," insists Prakash Kumar, 54, GSTN's chief executive officer, a former government official who also worked with US IT giant Cisco.

The building blocks
Part of his confidence stems from the fact that in September last year, Infosys was signed on for a Rs 1,380-crore five-year contract to develop and run the infrastructure. A team of about 50 developers from the Bengaluru-based IT giant are hard at work in-situ, accounting for about half the 100-odd employees who currently occupy GSTN's vast office space.

Ahead of that, GSTN has been working on developing the eco-system for the GST rollout, an enormously intricate exercise since the new tax will replace state value added tax (VAT), central excise and service tax and some other indirect taxes. The new regime will require all taxpayers to file electronically, whether for registration, uploading invoices, filing returns or paying taxes. Doing so is a challenge, says Prakash Kumar, not just because of the sheer size of the exercise but also given that a large chunk of taxpayers are not accustomed to working online. Early on, GSTN had signed on the National Securities Deposit and has been working with state governments to build the database to cover 6.5 million taxpayers registered under VAT and service tax regimes in India's states and Union Territories.

The exercise has been extremely tricky, involving "cleaning" the records and reconciling PANs (or permanent account number for taxpaying individuals) and TINs (or taxpayer identification number, which is used to identify dealers registered under the VAT regime). One problem, for instance, has been that promoters of small firms and partnerships often use their personal PANs for their organisations.

"It has taken us about 10 rounds but we are about 88 per cent through - that is, we can issue TINs for some six million taxpayers tomorrow," says Prakash Kumar. The question of the threshold limit, whenever it is fixed, is also not an issue. "There is no correlation between threshold level and compliance," he says. For instance, about two years ago, he explains, nearly 40 per cent of those who registered were below the threshold limit of Rs 5 lakh that applies for most state VAT systems, indicating that a large number of smaller traders hope to benefit from offsets when they do business with larger organisations.

The focus now is on enabling such small taxpayers who don't use online systems but rely on a variety of accounting software platforms such as Tally to become GST compliant. To this end, a workshop is being held on January 29 in Bengaluru for start-ups and software developers. This is one of a series of workshops GSTN has been regularly holding through the year with various stakeholders -GSTN calls them "eco-system partners" - to explain the system and iron out kinks in implementation. Interestingly, companies working in niche areas like e-KYC, e-sign, e-commerce and e-wallet solutions have also been invited.

At the same time, GSTN has been working with some 16 states - at their request - to develop their back-end systems in readiness for GST. The general spirit of cooperation among states can be gauged from the fact that although the Cabinet approved GSTN charging taxpayers a nominal user-fee, states have opted to foot the bill initially.

The preppy, gung-ho spirit within GSTN's headquarters is certainly at odds with the enormous uncertainties that inform the political controversies surrounding the tax. Is this naïve enthusiasm or genuine confidence? The latter, says S Madhavan, tax expert and co-chair of the GST Task Force of the Federation of Indian Chambers of Commerce and Industry. Having attended a briefing recently, he says a significant amount of work has been done towards building the broad architecture and it's more a question of tying up things at the margin. As he puts it, "Among the variety of moving parts that is the GST, the most stable part is the network!"