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Dominant stake unlikely for NSDL in GST network firm
May, 14th 2012

The National Securities Depository Ltd (NSDL), which was to hold a 21% stake in the company set up to run the goods and services tax (GST) network, may not be the dominant private stakeholder in it.

The government wants to avoid any controversy over a potential conflict of interest as NSDL could be a service provider to the network, according to officials familiar with the development.

The network was cleared by the cabinet in April as a private non-profit company to set up the information technology backbone for the proposed GST, with an equity capital of Rs.10 crore.

The Union and the state governments were to hold 24.5% stakes each in the company, leaving the balance 51% stake for private firms.

This private stakeholding was to be divided among NSDL (21%) and three financial institutions (10% each).

NSDL has been involved from the beginning in setting up of the GST network. They would like to continue to be eligible for contracts like providing software or technical support that will be floated from time to time, said a finance ministry official, requesting anonymity. Questions could be raised about NSDL being a stakeholder as well as a service provider.

A final decision has not yet been taken, he added. The matter is being debated.

Since the GSTN is a section 25 company, for NSDL the business it gets as a service provider may be more lucrative than ownership in the company, another government official who is closely involved with GSTN said on condition of anonymity.

A section 25 company is a firm where profits and any other income are applied only to promote the objects of the company and no dividend is paid to its members.

An NSDL official, who, too, did not want to be named, said it was for the government to make a decision. The government will decide on this, he said.

NSDL is promoted by IDBI Bank Ltd, Specified Undertaking of Unit Trust of India (Suuti), and the National Stock Exchange of India Ltd.

Shareholding in the GST network company may change if NSDL does not pick up a 21% stake in it. It is possible that the shareholding pattern may change and the 21% stake is divided further, said the second official cited earlier.

The GST network connecting the Centre and the states will be used to implement registration based on PAN (permanent account number), the filing of returns, and a payment processing system. The network, a key element of Indias most ambitious tax reform that seeks to create a unified market, is expected to be operational by August, finance minister Pranab Mukherjee said in his 16 March budget speech.

The company will have a self-sustaining revenue model based on the levy of user charges on taxpayers and tax authorities availing its service.

The uncertainty on NSDLs stakeholding in the network will not delay its roll-out, said the first official.

The introduction of GST will lead to the levy of a uniform rate of tax across the country, effectively turning it into a common market and getting rid of the inefficiencies and distortions caused by disparate levies. The use of a common PAN for both direct and indirect taxes is expected to check evasion and increase transparency as it will help the Centre and the states to compare income tax, value-added tax (VAT), customs and excise duties paid by a person, and determine discrepancies.

Initially meant to be launched on 1 April 2010, GST has been delayed due to a lack of consensus between the Centre and the states. State governments have expressed reservations over private firms holding a 51% stake.

The government agreed to impose conditions in the articles of association so that certain decisions can be taken only with a three-fourths majority, ensuring that the government will hold control over the network.

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