Differences in the levels of computerization among state administrations may force the Union government to drop its plan of migrating the existing value-added tax (VAT) regime to the information technology (IT) network being put in place to serve as the backbone of the goods and services tax (GST). The initial plan was to migrate VAT to the network to test preparedness before the eventual roll-out of GST, aimed at removing barriers to the movement of goods and services across states and creating a unified market.
Given the low levels of computerization in some states, the GST network (GSTN) will now focus first on developing a database of dealers based on the permanent account numbers (PAN) issued by the income-tax department. With this migration timetable delayed, the actual roll-out of GST may take longer than anticipated. GSTN, set up last month as a special purpose vehicle, aims to connect the databases of the states and the Centre, and will be used to implement a PAN-based registration system for taxpayers, a common tax return filing system and a common payment processing system. A robust IT network is considered crucial for implementation of GST, which would be a landmark tax reform.
“Some states like Kerala, Gujarat and Maharashtra have advanced levels of computerization while some other states lag behind. The focus of the GSTN will be to ensure that the data-sharing architecture is in place to enable information exchange between the central and the state government,” said a senior government official, who did not want to be identified.
GSTN will look to work individually with states to see how they can integrate with the technology backbone, said another official closely involved with the network. “Some of the state taxes departments are fully computerized, while in some everything is still done manually. One approach cannot be used uniformly for all,” he said. The official said it will take some time to encourage traders to completely migrate to a PAN-based registration system. “Different states have different systems for assigning each ID. Till the traders do not get used to a PAN-based system, they will have to be allowed to use their old IDs along with the PAN-based system. This will ensure that in the national database, a PAN-based system is followed,” the official said.
According to government estimates, there are 3-4 million VAT-registered dealers, with the PAN coverage being around 60%. Though initially reluctant, states agreed to a common PAN-based registration system after a pilot by the Maharashtra government showed how large-scale tax evasion was taking place because of a lack of information-sharing between the Centre and the states.
With GSTN, states will be able to access information such as excise and service tax levies maintained by the Union government and cross-check this with VAT paid by a particular trader to look for tax evasion.
GSTN, set up as a not-for-profit company under section 25 of the Companies Act, has the Union and state governments holding a stake of 24.5% each, and private firms such as ICICI Bank Ltd, National Stock?Exchange of India Ltd and Housing Development Finance Corp. Ltd the remaining 51%. In a section 25 company, profit and any other income are applied only to promote the objectives of the company and no dividend is paid to its members.