Imperatives Driving GST and GSTN :
The proposed implementation of GST, a destination based consumption tax, has been designed as a dual VAT, keeping in view the unique federal nature of India’s Constitutional Polity. The different imperatives driving this reform and role of GSTN in achieving them is briefly spelled out below
Seamless Flow of Input Tax Credit across the Country
GST rollout envisages implementation of 35 GST Laws of the different State governments and the Central Government in such a manner so as to ensure seamless flow of input tax credit across States in the country. For achieving the seamless flow of input tax credit it has been proposed that the all interstate transaction will attract a levy of IGST, approximately equal to the sum of the CGST levy and the Standard SGST levy for a particular commodity. Consequently, in case of business to business (B2B) transactions the recipient will accumulate IGST credit which can be utilised for discharging his liabilities of IGST, CGST or SGST. Successful implementation of this scheme will require prompt verification of the IGST credits claimed on interstate transactions in the returns.
Hence a need was felt for a trustworthy entity which will facilitate ITC verification on interstate transactions. Further, a strong need has been felt by all the State governments for quick verification of all type of input tax credits claimed by the taxpayers which would be facilitated by the GST system managed by an entity having very strong IT infrastructure.
Settlement of IGST on interstate transaction to consumers to the destination State Govt. and the Central Government :
GST is a destination based consumption tax in which interstate transactions are proposed to be taxed at full rate. Under this design the tax on transactions destined to a consumer in a different state will be collected at full rate in the state of origin as IGST but it will be apportioned between the Central Government and the destination State government. The information support and the accounting of this settlement needs to be done by an independent entity.
Further, to simplify the administration of the GST regime, it is proposed that the IGST credit can be used to pay CGST and SGST liabilities and the IGST liabilities can be discharged using SGST and IGST credits. This would however impact the revenues of the State and Central Governments and the GST system is expected to provide information on the cross utilisation of IGST credit, SGST credits and CGST credit to finally transfer funds amongst the IGST, CGST and SGST accounts to reverse any impact caused by cross utilisations. This again has to be performed by the GST system.
Ease of doing business and minimisation of Compliance Cost:
The indirect tax domain in India has developed in a very complex manner. The GST reform is expected to simplify it. However, the federal nature of polity imposes constraint on the extent of simplification possible. There are going to be 34 State GST Laws and one Central GST laws. To overcome this limitation, a need was felt to have a single common interface with the tax payer through a GST Common Portal, which will be the medium for most of his interactions with the tax authorities. A tax payer will take registration through this common portal, file a single return for each tax period, make payments of all types of due taxes, and claim all types of refunds.
The complexity of the GST System can be envisioned with the data which the GST System is expected to handle as given below:
a. 70 to 80 Lakhs taxpayers;
b. 260 to 300 Crores B2B invoice data per month
c. More than 120,000 tax officials to work
d. Monthly filing of returns
e. Credit of ITC
In view of the above complexities and requirement, an Empowered Group on IT for GST was set up under the chairmanship of Shri Nandan Nilkeni in the year 2010 to prepare the IT strategy for GST Implementation. This task group recommended the setting up of GSTN as a private section 25 company with the central government and the State Government holding 24.5 % each (together around 49%) and rest with private institutional players. The strategic control of this organisation was envisioned to jointly with the Central and State Governments. The recommendations of the Committee were approved by the Empowered Committee of State Finance Ministers (EC) and the Union Cabinet, which led to incorporation of Goods and Services Tax Network, as a Section 25 (not for profit), non-Government, private limited company in March 2013. The union cabinet while approving creation of GSTN also approved that GSTN will be an exclusive national agency responsible for delivering integrated Indirect Tax related services involving multiple tax authorities, which will provide common Registration, Return filing and e-Payment services to the taxpayers. The Cabinet also empowered it to charge the users of the GST Systems namely tax authorities and the taxpayers.
Apart from providing shared IT infra for registration, return and tax payment GSTN is also supposed to
i. Ensure integration of the GST Common Portal with existing tax administration systems of Central / State Governments and other stakeholders
ii. Run the clearing-house mechanism for IGST amongst centre and states
iii. Provide Analytics and Business Intelligence to tax authorities
iv. Carry out research, study best practices and provide training to the stakeholders
To retain strategic control but yet provide flexibility and agility, GSTN has been created as a special purpose vehicle (SPV) for the implementation of common IT Infrastructure for GST with following equity structure:
| Central Government | 24.5% |
| State Government & 2 UTs & EC Collectively | 24.5% |
| LIC Housing Finance Ltd | 11% |
| ICICI bank ltd | 10% |
| HDFC Ltd | 10% |
| HDFC Bank | 10% |
| NSE Strategic Investment corporation Ltd | 10% |