New Delhi: Even though the Centre and states are yet to reach a consensus on certain aspects of the proposed goods and services tax (GST), the groundwork for the technology infrastructure has started. As a part of this exercise, a pilot project has been launched in 11 states. Union finance minister Pranab Mukherjee on Wednesday said he expects feedback from the information technology (IT) pilot projects by the beginning of next month.
The idea behind the pilot is to make sure that the states’ technology infrastructure is GST complaint so that whenever the roll-out takes place, they are prepared with the back-end building, which can be a painstaking task stretching over many months.
“A strong IT backbone will be the key to successful GST implementation,” said Pratik Jain, executive director of consultancy firm KPMG.
The implementation of GST, one of the most significant tax changes that India has ever sought to make and which will turn the country into one common market, has been held up over various objections by the states.
“Currently, there is a stalemate with respect to certain policy issues on GST. Unless these are removed, the Act will not happen. However, it is important to test and ready the IT infrastructure, which is a time-consuming process,” said a person familiar with the developments. He did not want to be named as the details of the pilot project have not been made public.
While the parliamentary standing committee on finance is examining GST, the Central Board of Excise and Customs (CBEC) is continuing with its back-end preparatory work, said chairman S.D. Majumdar.
“The IT initiative is progressing well in collaboration with NSDL (National Securities Depository Ltd),” he said. “The pilot project for creating a single-window portal for registration, payment of tax and submission of reports has been finalized in consultation with some of the states.”
A special GST network unit has been incubated in NSDL, India’s largest depository. The unit will be responsible for drawing up the implementation strategy for the country’s ambitious tax reform.
Once the pilot project has been completed, NSDL will make a detailed project report for GST implementation and roll-out, according to the minutes of a workshop held in January on the subject and reviewed by Mint.
The pilot project will entail testing the system for registration of taxpayers, besides developing a module for payments as well as for filing returns. This will all be done through the central portal, which is being developed as a one-stop interface for all transactions. The first step of the pilot will be to test if the registration process can be done through the GST portal and if the states are able to access and process the data. “The larger idea is to build a national database of all dealers. Migration of existing data will be a key aspect of it and the pilot will test its feasibility,” said the person cited above.
Once the mandate for the roll-out is given, the states will still have to set up a great deal of infrastructure to be fully GST-compliant, he said.
For taxpayers’ registration, a common permanent account number (PAN)-based system will be used.
An empowered group on IT infrastructure on GST, headed by Unique Identification Authority of India chairman Nandan Nilekani, had said in its report that the unique ID was necessary to identify each taxpayer. “A common PAN-based taxpayer registration has several benefits, including a unified view of taxpayers for all tax authorities,” it noted.
The registration of taxpayers can begin by the end of June or July, said the person quoted above.
“For the purpose of the pilot, participating states would identify taxpayers (maximum of 200 dealers) who would undertake testing from the taxpayer side,” according to the minutes of the workshop cited above. As far as the payment system is concerned, the Central Board of Direct Taxes and CBEC already have a digital system in place. However, it will have to be extended to bring other entities such as banks under its purview, which may take some more time.
Meanwhile, the states are also conducting feasibility studies in terms of what systems need to be modernized and their preparedness. “Some of the states are at an advanced stage of blueprinting their strategy for GST and have already appointed consultants, while the others are in the process of doing so,” said Guru Malladi, a partner at audit and consulting firm Ernst and Young.
NSDL has been mandated to conduct an “as is” study of state tax systems to gather information on the current IT infrastructure and to provide a state-wise status report so that interface requirements for GST’s roll-out can be arrived at. However, initially only the “as is” study of the pilot states will be undertaken.
Nine states—Maharashtra, Gujarat, Kerala, Karnataka, Tamil Nadu, Orissa, Jammu and Kashmir, Delhi and Andhra Pradesh, all members of the GST sub-working group—are part of the pilot project, along with Assam and West Bengal.
The constitutional amendment Bill that’s required before the implementation of GST was introduced in Parliament during the budget session and was referred to a parliamentary standing committee for further deliberations.
Some analysts are sceptical about the pilot. “All state systems are not synchronized. All of the states have different systems. It will not be easy to streamline all of these different systems,” said a partner at one of the consultancy firms, who did not want to be named. “The main issue will be tracking of interstate credit.”
The person familiar with the developments cited earlier said that though the pilot is the first step towards a successful GST regime in the country and shows the Centre’s seriousness to implement it, “rolling it out will be a huge challenge unless there is sufficient push from the powers that be”.