Building the World’s Biggest, Most Complex Tax System: GSTN Chairman in an Exclusive Interview

Yes. That’s right. It’s a not-for-profit, non-government, private limited company promoted by the central and state governments. And the specific mandate of the company is to build the IT infrastructure and the services required for implementing GST. And these services will be made available to all stakeholders such as the central tax department and the tax departments of all state governments, the RBI, the banks etc. and of course the taxpayers.

You see the last year, that is 2015, we had called for offers from IT companies to come to us to carry out this task of building the common GST portal, all the applications that will run on the portal, to bring the hardware, to load the applications on the hardware and to run it and operate it for five years. So at that time we had received offers from all the big companies like TCS, Infosys, Wipro, Microsoft and Mahindra. So all of them came and we selected Infosys on the basis of a national bidding process. So, November 2015 we awarded the contract to them and at that time we asked them to go ahead with application development and we asked them to wait for our signal for placing orders for the hardware. Since November they have been working on the software part. We were waiting for the Rajya Sabha to pass the Constitutional Amendment, which has happened now, so we have given them the go ahead for placing orders for the hardware. So this is where we stand today.

You see, so far as the financials of the project are concerned, the total cost is around Rs 1,380 crore, which includes the cost of hardware, software and the operations for five years. So, now that we have given the go ahead for hardware, they will place the order for the same and we expect the entire hardware is to be imported, and this will be installed and tested and made ready to accept the software, and by December it will be ready. By that time, the software, further work on that will continue. We hope to start testing the software from October. And in December it will go on to the hardware and then we will start the beta run in February. So that is the schedule, so that you have everything ready before 31st March.

Yes. That is also a part of the task that we are going to perform. See, software development is one part. Migration of existing taxpayers of VAT which number about more than 65 lakh and about 20 lakh of service tax payers and about 3-4 lakh of central excise taxpayers - their migration starts sometime in October and it will go on until February. Four months, because there we would be asking all taxpayers to come to our portal and fill in the information. We already have the numbers and essential information regarding the companies names or their constitution. That we have. But rest of the information they are supposed to fill up. So this will happen between October and February.

No. That work is going on but it will be ready this month itself. We came to Bangalore to discuss that only, the progress on that. We had a meeting with Infosys today (Friday, August 5). So that work is going on it will be ready on time. Because that software also has to be tested and only then it will go live, most likely on 2nd October.

New registrations under GST will be from the date GST is to be rolled out, the target date, that is 1st April. So from 1st April, new registrations will begin and they will be registrations under GST directly.

We have not tested yet, but we are going to test it. Because as I told you, on the migration part the software is ready. So, we are starting testing that software now. But it will be available for taxpayers to come and enter their information starting from October. And so far as the GST part is concerned that software is still under development and as I told you, that testing will start from October-November-December. We have scheduled different parts for testing, starting from October. And from February the entire thing will be ready so we will have the beta run.

That is different. You see what we are doing is the front end, that is where the taxpayers will come, they will register themselves, they will file the return and make tax payment. That is the front-end.
Back-end is the part where, once we get all the data, we will pass it on to the respective tax authorities. And they will do their tax administration functions like assessment and audit and adjudication, things like that. That is called the back-end.
So normally one would expect the states to develop that. But, in fact 19 states approached us saying that you please help us with it. So we have agreed to do that for 19 states. So that work also we are doing and that will also simultaneously be ready.

They are doing it on their own and they have all made progress so we hope all of them will be able to manage before the 1st of April.

There will be no challenge because you see so far as we are concerned we are looking at the front-end. All the data is there. Now, after we pass on the data to each tax authority, it is up to them how they keep the data. They are not going to send it back to us. So, it is entirely up to them. But what we have done, we have shared with these states, what we call model one, model two states. Model One states are those who are building the back-end themselves. Model Two are those for whom we are building the back end. So the Model Two back-end processes we have shared with all the Model One states. It is up to them to adopt it. We have suggested if you adopt it there will be uniformity, but even if you have your own processes it would not have any problem.

There are many challenges. The first challenge is that it is an entirely new thing for the country because it is very different from the current tax systems for VAT or central excise or for service tax. Also these are all value added taxes but since all of them are coming together, so what is emerging now will be entirely different from whatever the current experience. Therefore, this is a big challenge, it is a new thing.

The second is the size. Until now the largest taxpayer base among indirect tax was with the Central Board of Excise and Customs (CBEC), where they had 20 lakh service tax payers and the states had 5-7 lakh. Now today we will be looking at something like one crore taxpayers (under GST). So the size of the system is humongous. And therefore we have to be very sure that the system that we prepare is efficient enough and robust enough to take this load and it is efficient enough to deliver very good experience to the users.

The third one, as I said, this is a new thing. Therefore, we have to familiarise the tax officials as well as the taxpayers with the new system, and it has two parts. One part is familiarity with the law, the other part is familiarity with the IT system. The law part comes with the revenue ministry, the finance, revenue departments, they are organising training camps. We are also assisting. For that we have drawn up a program. A series of training programs for tax officials. And we will be collaborating with all the trade bodies for disseminating information and training material to the taxpayers through them. So this is the program.

There are many challenges, it will be perhaps the most complex systems that the world has seen. One of the largest tax systems that the world has seen.

Today what happens, if you look at any of the three major indirect taxes which are being subsumed under GST, you see it is not entirely in the electronic form. In many states, a good number of filings take place on a manual basis. Although all states now have a computer system, but not everybody is required to file in electronic form. So that is one big difference that will happen. Because GST, whether big or small, every taxpayer is supposed to register himself and file his returns in electronic form. So this will be one change for the taxpayers.
Now, this is not a very big challenge because those who have started electronic filing under VAT or service tax, they would know how to handle the system. And for the smaller taxpayers, through our study we have found, incase of VAT, that these smaller taxpayers use the services of tax consultants to file the returns and these tax consultants are quite savvy. They won’t have much of a problem.
And in order to facilitate small taxpayers to file the return or interact with us we are encouraging the private sector come up with mobile applications that would enable smaller taxpayers to file returns easily. So this is the main difference that will come.

There will also be a difference in the manner in which the returns are filed. Because today what is that every taxpayer files returns by giving details of sales and purchases. On the basis of this return, tax credit is allowed. Ideally, the tax officer must look at the returns filed and verify whether the input tax credit is claimed rightly or not. But because of the large numbers (of taxpayers) it is not possible. So that happens only during audit or assessment, in which 2-5 percent of taxpayers are taken up under audit or assessment. So, there is an impression, and in audit it has been found, that large number of input tax credit claims are inflated. So on our system (GSTN), the input tax credit will be verified online. So, for the taxpayers it will be good because online verification will be there and they will get the credit immediately. And those who are trying to take inflated credits, that will be prevented.

Another difference is that taxpayers are being asked to file only the return of sales, under GST. So they will file the sales returns by 10th of the month. This is in the law (Model GST Law) is coming and that has been put on the website. By 10th they will submit their sales returns. Then this sales data will be populated in the purchase returns of the purchasers. So they (purchasers) don’t have to file, this will go into their account. They only have to look at it and say yes this is correct. If they find it is not correct, they will make the correction. So this input tax credit will be taken care of automatically because they can now decide, that yes this is the amount of tax I have paid or I have collected. So from there on the matching of input tax credit will become easy and it will be 100 percent correct.

I already mentioned that for these small taxpayers we are encouraging the private sector to come up with small apps that they can run on mobile. Now in India the mobile population is very high, you will find on every street, everybody has a mobile. So we think that will really help those small taxpayers who do not want to work with tax consultants. Consultants of course have connectivity, so there is no problem. We have also decided to put up apps which they can download from our system and use, for uploading data to our system. And those will be available on mobile also.

See, I am not the right person to answer this question because this is a question for financial analysts or for economists. But what I can tell you is that, in the first two years we will also have issues because when you run such a large system, there would be some problems that will come up. But our effort is to build a system, such that whenever any issue is flagged we should be able to resolve that within a defined period of time. So the system is available on time and the response is fast.

Ya businesses have time now. We are in July, and this tax will come from 1st of April. So during this time they need to (prepare). All the businesses are today filing returns under the prevailing tax regime and for that they have made arrangements. Those arrangements would have to be modified in the light of the new processes and law. So we have called agencies like SAP and Oracle and all the accounting software people and we have told them that they should start working on modifying their software so that their clients can make the filing of tax returns under the GST regime. So I believe that these companies are already at it. It is a challenge because the time is not very long. But, I think they will be able to do it.

I can only talk about the IT part and we will be ready by 1st of April. Because we have started early. In fact, we have started working on this in December 2014, that is when we appointed our consultant to draft the project and what all will go into the RFP (Request For Proposal - to build the network). We had at that time discussed with the IT industry also, and taken their suggestions. So we had the time to make preparations, and we will be ready by 31st. I think so far as we are concerned it is quite practicable.