Govt grapples with GST network glitches

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Political consensus on unified Goods and Services Tax (GST) may appear well within reach, but the technology backbone, critical to roll out the system, is staring at glitches marred by funding and ownership issues.

GST Network (GSTN), a special purpose vehicle (SPV), was set up as a private limited company in 2013 to create a robust IT backbone to make GST’s implementation seamless, enable real-time taxpayer registration, filing returns, handle invoices, execute inter-state tax settlements, and connect states for two-way data flow.

GST is India’s most ambitious tax reform, aimed at stitching together a common national market by removing a web of local levies, such as, octroi and sales tax with a single uniform tax.

The department of expenditure has now questioned the logic of giving 51% stake to five private institutions for 5 crore in the GSTN special purpose vehicle (SPV).

According to a May 17 finance ministry note reviewed by HT, such a structure adds “substantive cost” with “no apparent advantage”.

The existing GSTN-model is a three-tier system. The front office is a special purpose vehicle (SPV), where the tax returns are filed. This SPV is connected to the unified system maintained by the Central Board of Excise and Customs (CBEC), which, in turn, is connected to state networks and other stakeholders, including banks.

The funding and ownership concerns arose after the empowered committee of state finance ministers said that states and the Centre will jointly fund the GSTN on a 50:50 ratio. This is different from a previously proposed self-sustaining revenue model, where the GSTN would levy user charges on traders, manufacturers and tax authorities for using its services.

So far, Rs 145 crore has been spent for “pre-operative expenses” such as high salaries. The GSTN has sought another Rs 510-crore loan to meet the “expenses”.

The GSTN is in the process of selecting a software service company to serve as a managed service provider (MSP), which will effectively run back-end technology operations.

“Since MSP will be executing the service, the SPV has no value addition. Moreover, we will be handing over ownership of critical commercial data to private players, while we have in-house expertise”, a finance ministry source said.

A meeting of the committee of secretaries of the finance ministry is due to meet this week for deciding the future of SPV.

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