GST, a step closer to realization

GST, a step closer to realization

New Delhi: The efforts to usher in a goods and services tax (GST) received a big boost with the states as well as the Centre agreeing to the setting up of a clearing house to resolve tax collections and credits under the National Securities Depository Ltd (NSDL), India’s oldest depository, as a special purpose vehicle.

This entity will then be spun off as an independent company in which NSDL will retain 10% and the balance will be distributed between the Centre and the states. A meeting of the empowered committee of state finance ministers, scheduled for 4 August, is to decide on the proportion of the equity share between the Centre and the states.

The in-principle approval to go ahead with a clearing house was accorded at the last meeting of the empowered committee on 21 July.

The clearing house, a key part of the GST architecture, is expected to ease the creation of the common market, ensure that each state gets its share of revenue and also provide useful tax information to the authorities. The proposal envisages a standard electronic return, which each of the estimated eight million establishments will be required to file every month.

“Institutions such as NSDL may have the experience of handling volume as the nature of such transactions would require," said Guru Malladi, partner of audit and consulting firm Ernst and Young. NSDL also operates the tax information network on the direct taxes side.

The GST clearing house will be similar to a stock exchange. All the states will be members and the agency will make sure tax revenue is transferred to the right state after every transaction.

The backbone needs to meet three conditions to start operations: businesses must be able to register online, taxes can be paid after self-assessment and returns can be filed online.

“The clearing house mechanism is very industry-friendly as it will eliminate the hassle for dealers to register in all the states," said Pratik Jain, executive director at audit and consulting firm KPMG.

GST is an attempt to transform India’s indirect tax system by dismantling fiscal barriers between states and creating a common market. It is expected to lower operating costs for businesses and lower prices for consumers.

The states, through the empowered committee of state finance ministers, in November proposed a clearing house model and dubbed it IGST (inter-state transactions of goods and services). The finance ministry accepted the IGST proposal in January.

In its report on 9 June, Mint had reported that the government could skip some time-consuming steps involved in using third parties to create the backbone for GST in order to fast-track the process as the 1 April deadline for implementing GST is fast approaching.