Navin Kumar, Chairman of GST Network, a not-for-profit company set up to provide IT infrastructure and services for the proposed Goods and Services Tax, or GST, looks calm and composed. The calmness hides the difficult nature of the task he has on his hands.
Kumar and his team, working from the fourth floor of an office complex in Delhi's Aerocity, are racing against time to build the IT platform on which businesses will register themselves, pay taxes and file returns after the GST comes into force. His team as well as the IT vendor, Infosys, are, in a way, shooting in the dark - they are writing the software without knowing the final shape the GST law and rules will take. All they have to work with is a model law released on June 14 this year, which, too, will go through changes after suggestions from stakeholders.
"The release of the model GST law has meant more work for us. If the law had been finalised before the work was commissioned, it would have been easier for us. Since the two things are running parallel, it becomes a little difficult to incorporate the changes (in the software) as and when they are made," say Kumar.
The implementation of GST, India's most ambitious effort to simplify the indirect tax system, has been a work in progress for close to a decade. The law, supposed to be implemented from April 1, 2010, but delayed due to fighting between India's two biggest political parties, got a new lease of life recently when the empowered committee of state finance ministers gave it an approval in principle. Now, with recent elections changing the numbers in the Rajya Sabha in favour of the ruling National Democratic Alliance, there is a chance that the GST Bill may be passed in the monsoon session of Parliament.
However, the next question - the first being the passage of the Bill itself - is the government's ability to implement the law from the targeted date of April 1, 2017. With just nine months to go, no rules in place yet, writing of the software a work in progress, and no movement on purchase of hardware, it will require the Centre and states to do some heavy lifting if they are to meet the ambitious deadline.
A Maharashtra commercial tax officer, for instance, says it will take not less than six months to get the system in place after the rules are finalised. "If the rules are not finalised by September, it will be difficult to get the system ready by April next year," he says. This, when Maharashtra has a robust and automated commercial tax system. Some states do not even have a fully-computerised tax system.
Nuts & BoltsThe backbone of the entire GST system, the IT infrastructure, is being developed by Infosys, which won the Rs 1,380-crore contract in October 2015. It includes a common platform that will provide services such as PAN-based registration, return filing and issue of challans. It will be operated by GST Network and allow taxpayers to upload information that will be accessible to the different tax authorities - state tax departments as well as the Central Board of Excise and Customs (CBEC) - for which they will need to have their own back-end IT solutions up and ready as soon as possible. Are these stakeholders ready?
GSTN's Progress
According to Kumar of GSTN, they gave the contract to build the front-end application to Infosys in October 2015 in the hope that the GST Bill would be passed in the winter session of Parliament. That did not happen. But they decided to go ahead with the application development.
"The entire system consists of hardware (servers, network equipment, etc.) and software. We held back the procurement of hardware but decided to start work on the software. We have made good progress on that," he says. GSTN is hoping that the Rajya Sabha passes the Bill in July so that Infosys can place the order for the hardware, too. It has selected two locations to house the servers and data centres. In Noida, it will rent space at Tata Communications' data centre, while in Bangalore it will take space at Bharti Airtel's data centre.
Kumar is hoping that the main system, or the front end, will be ready by January. The testing of the application may take another month, after which GSTN will get it certified by Standardisation Testing and Quality Certification, a government body that provides quality assurance services in electronics and IT.
In fact, getting Infosys on board itself was a challenge for GSTN. This is because IT companies were reluctant to participate in the project due to fear over delayed payments. "We held many interactions with the industry around 2014, asked them about their concerns and promised to resolve the issues. These interactions helped and finally big companies such as TCS, Infosys, Wipro, Tech Mahindra and Microsoft bid for the project," says Kumar.
Has GSTN addressed the issue of payments? Kumar says they have already made two payments to Infosys. Though Kumar did not disclose the exact amount paid, he said of the `315 crore sanctioned by the government at the time of the company's incorporation in March 2013, they have been able to spend only `150 crore in the past three years. The two payments to Infosys are from this `150 crore.
Infosys declined to comment on the progress of the project and issues related to payments.
Preparation By OthersThe GST is a dual tax with states and the Centre sharing the proceeds. So, while it is important to ensure that the common platform is ready in time, it is equally important for states and the CBEC to get their back-end systems up and running. "What we have gathered from our interactions with tax officials is that the states can be put into two buckets - states that are ready with both front-end and back-end and states that are ready with the front-end and are likely to develop the back-end in the next five-six months. So, if the question is whether the IT infrastructure is ready, then the answer is that we are probably ready," says Prashant Raizada, Partner, Indirect Tax, BDO India LLP.
States' preparedness can be credited to the lead taken by GSTN. When it started out in 2014, it realised that it was not enough to do its own work. It asked states about the level of computerisation of their tax systems. It found that half the states were not prepared and offered them help. A total of 19 states and union territories agreed. The states were categorised into two - Model 1 states, which decided to build the back-end on their own, and Model 2 states, which sought GSTN's help. However, GSTN made it clear that it would create just one application and states would have to agree to a common process for using the platform. "I am happy to note that most (Model 2 states) have made good progress. If the GST Bill is passed (in the monsoon session), all of them will take up the work in all seriousness and go full steam. I think they will be able to do it on time," says Kumar of GSTN.
For instance, Delhi, one of the Model 2 states, is comfortably placed. A special commissioner of the Delhi Commercial Tax Department says, "The network issue has been resolved with GSTN helping us build the infrastructure."
Kumar says states have not paid them any money for building the back-end. The user charge will be decided based on the funding cost (GSTN plans to borrow Rs 500 crore from banks this financial year) and the number of taxpayers using the system.
Maharashtra is developing its own back-end system. It has given the work to NIIT Technologies. "We are getting our systems newly automated. The GST back-end is part of the exercise. The contract is worth Rs 150 crore, including the development of the GST back-end," says Dhananjay M. Akhade, Joint Commissioner, Sales Tax, Department of Sales Tax, Maharashtra. But he says that unless the GST rules are finalised, they cannot close the back-end project. Once the rules are in place, the department will take at least six months to build the complete system.
Efforts to reach out to the CBEC, which is building its own back-end, did not elicit any response.
The roll-out of the GST will also depend on how quickly taxpayers update their systems. "The preparedness of organisations varies. Many large organisations have been proactively following the changes, including dissecting the latest model GST law," says Arun Subramanian, Vice President, Globalization Services, SAP India. He says shifting to the GST does not mean changing the entire IT system. "Software development has evolved over the years and most ERP solutions are based on configuration and switches. There will not be any significant costs for complying with the GST regime from the point of view of IT," he says.
Training of Officials
While the common IT platform, the interface and the back-end are the core of the GST system, training of tax officials from the Centre and states is equally important for seamless transition from the current value-added tax, or VAT system, to the new regime.
"Though VAT and GST are not very different, the processes are different. So, you have to train the officers," says Kumar of GSTN.
The work for training officials has started. The department of revenue has started a programme for training state and CBEC officers in the legal aspects of the GST law. For new technology, GSTN has drawn up a training programme and hopes to start from August. There are around 100,000 tax officers in states and at the Centre. GSTN alone can't train them all. So, it plans to teach some master trainers. These trainers - 300 in total - will then train 1,500 officers of states and the CBEC. For taxpayers, GSTN will work with trade associations.
For now, it's over to the Rajya Sabha.