Six companies, including ICICI Bank Ltd and Housing Development Finance Corp. Ltd, have expressed interest in buying stakes in the firm that will set up the goods and services tax (GST) network, taking the government a step closer to implementing the ambitious tax reform, according to two finance ministry officials.

Other companies that have shown interest include HDFC Bank Ltd, LIC Housing Finance Ltd, National Stock Exchange of India Ltd (NSE), and IDFC Ltd.
A 51% stake is reserved for private firms in the company that will set up the technology backbone of the tax system, aimed at creating a common market in the country. The proposed GST will replace all indirect taxes levied on goods and services by the Union and state governments.
To avoid a potential conflict of interest, the government has decided that National Securities Depository Ltd (NSDL), which was to hold a 21% stake in the company, will not be a shareholder in the company since it is also likely to be a major service provider to the GST network.
In April 2012, the cabinet cleared the setting up of the GST network as a not-for-profit company with the Union government and state governments holding 24.5% stakes each. The remaining 51% was to be divided among private firms, with NSDL holding a 21% stake and the balance 30% to be equally divided among three financial institutions.
“While LIC Housing Finance and NSE have expressed willingness to hold 11% or more stake, the remaining four financial institutions have expressed willingness to hold up to a 10% stake,” said a finance ministry official, who did not want to be identified. “A final decision on the shareholding pattern will be taken after the empowered committee of state finance ministers gives its nod.”
The GST network, proposed to be set up with equity capital of Rs.10 crore, is crucial for the introduction of the tax system.
“The entire settlement between various states and the central government and the verification of the credit chain will depend on the GST network,” said Bipin Sapra, a tax partner at audit and consultancy firm Ernst and Young. “The involvement of private sector financial institutions will ensure the project will be set up in an efficient manner.”
Spokespersons for HDFC and LIC Housing confirmed their interest. The HDFC spokesperson termed the network as a development initiative. NSE declined to comment. Email queries sent to ICICI Bank, HDFC Bank and IDFC remained unanswered.
NSDL, which has been closely working with the government and Nandan Nilekani, chairman of the Unique Identification Authority of India, for developing the GST network will work for the network and not hold a stake.
“We want NSDL to work for the network. If NSDL becomes a major shareholder, then there would be a conflict of interest,” said a second finance ministry official, who, too, did not want to be identified.
Gagan Rai, managing director and chief executive of NSDL, confirmed the company will not be a shareholder in the network. He declined to comment on NSDL’s future role in the GST network. “Nothing is finalized as of now,” he said.
The government has approved Rs.100 crore for the GST network to acquire offices and start operations. The network may be allocated another Rs.200 crore in due course. The network will connect the databases of the Central and state governments. It will be used to implement a registration system based on a permanent account number, or PAN, return filing and payment processing.
Former finance minister Pranab Mukherjee, in his budget speech last year, had said the network would start operations by August 2012. It missed the deadline.
There has, however, been some progress with the government last week approving Navin Kumar, a former chief secretary of Bihar, to head this special purpose vehicle. “We will register it soon,” said the second official.