The introduction of the goods and services tax (GST) across the country is widely expected to decrease compliance burden for businesses, reduce paper work as well as the direct interface between companies and tax officials.
And indeed, it would be if the Centre and states adopt the proposals made by the Central Board of Excise and Customs Group on Implementation of GST recently for common IT platform and common registration.
The group in its report of July 12, 2010 has suggested complete re-engineering of business processes to make the transition smoother and to scale up the capacity of the department to deal with nearly five-fold increase in the taxpayer base to about 50 lakh.
The increase in the taxpayer base would be a result of lowering the threshold to Rs 10 lakh for all business to be covered by the GST from the existing level of Rs 1.5 crore for central excise as well as from reduction of the number of exempt items.
The group has suggested that the registration process of the three components of the GST central GST, state GST and integrated GST be common and online, tax payers be given a single PAN-based registration for all business premises in a state, single return form for all three taxes and filed online through a common portal, crediting of refund amount directly to a claimants bank instead of issuing cheques, dispensing with the current practice of mandatory annual audit of large tax payers and reducing the frequency of filing of returns for small tax payers, among other measures.
Now the re-engineering of business processes before GST is rolled out in April 2011 is critically dependent on two factors creation of a robust IT infrastructure and early completion of the cadre review and its reorganisation to meet the requirements of the new tax regime.
There lies the challenge: the completion of the two processes by the deadline is difficult, if not impossible. The group has said that the IT infrastructure needs to be ready three months before the rollout of GST.
So if the Centre were to somehow manage all the other imponderables such as constitutional amendment in the next few months to ensure a April 2011 rollout, will the IT infrastructure be ready by January 2011? The National Securities Depository Ltd (NSDL) has the requisite experience, as it has set up the tax information network not so long ago.
But considering a special purpose vehicle for creating a clearing house for GST that would handle online payment of taxes is yet to be created by the NSDL in partnership with the Centre and states, getting that infrastructure in place and tested for stability by March 2011 looks a bit ambitious.
Similarly, the completion of the cadre review and reorganisation of the excise and service tax commissionerates country-wide as GST commissionerates along with separate commissionerates for audit and anti-evasion would take time, and rushing the process through without much thought can prove disastrous for the tax department as lesson learnt from many mergers of companies would illustrate.
For instance, the merger of Air India and Indian Airlines continues to suffer from many unresolved human resources management problems.
And the changes proposed by the CBEC group on GST implementation is wide-ranging the existing 27 zone for central excise and service tax, organised as 93 central excise commissionerates, seven service tax commissionerates and four large tax payers units are to be reorganised as 150 GST commissionerates, 45 audit commissionerates and 20 anti-evasion commissionerates.
The idea is that each commissionerate handle about 35,000-50,000 tax payers. Further, the GST commissionerates may be organised as a one, two or three tier structure or a mixed model of three, depending on the density of taxpayers in the jurisdiction of each commissionerate.
Within each GST commissionates, work is to be divided along functional lines to encourage specialisation rather than on territorial basis as is the norm now. The reorganisation would without doubt help the tax payers, as among the changes proposed include allowing companies with multiple premises within a state to choose the commissionerate with which it would prefer to file returns.
Other matters that need to be sorted out include identifying premises for setting up the GST offices, setting up common facilitation centres, familiarising the staff with the framework of the new tax.
For the moment, even the framework of GST is not finalised. Perhaps it will be done this week when the empowered committee meets again in Delhi. But there are too many differences to narrow, including the issue of the reducing fiscal autonomy of states.