GST AND ITS DEPENDENCY ON IT INFRASTRUCTURE

[Nagesh Bajaj]

IT infrastructure will be one of the basic requirements for successful implementation of Goods and Services tax. It should be well in place before introduction of GST. Based on the experience of different state governments, we can say that without an efficient e-governance it is not possible to administer value added tax regime effectively. The Input Tax Credit (ITC) is an important aspect of VAT and it is difficult to monitor ITC in the absence of fully developed computerized system.

At present, the e-filing of returns as well as filing of various forms under VAT, excise duty and service tax is a bitter experience for the taxpayers. Inspite of the confirmatory claims made by both the central government and the state governments, the system is not adequate. The hardware developed is quite slow in responding to the taxpayers requirements. Not even hardware but software application is also full of irregularities. Human resources required under present e-systems are substantially more than what is used under the earlier system. It was supposed that the electronic system will bring down the use of paper but it has gone up after the introduction of e-filing. The entire system created is a mess and will be of no use in the long run.

On the basis of comments of Department of Revenue (DOR) we can say that both the centre and states have reached on a consensus on the issue of IGST model for inter-state transactions. IGST would be collected by the central government on the inter-state transactions of goods and services. Centre would levy IGST (CGST plus SGST) on all inter-state transactions of taxable goods and services. The inter-state seller will pay IGST on value addition after adjusting available credit of IGST, CGST and SGST on its purchases. The exporting state will transfer to the centre the credit of SGST used in the payment of IGST. The importing dealer can claim credit of IGST while discharging his output tax liability in his own state. The centre will transfer to the importing state the credit of IGST used in the payment of SGST. The central agency will act as a clearing house. It will verify the claims and inform the respective governments to transfer the funds. Hence, there is maintenance of uninterrupted input tax credit chain on inter-state transactions. IGST model is completely a self-monitoring model.

A close look on the IGST model suggests a facilitation of robust IT system with all the necessary information for computation of the tax credit. The most important task before the Empowered committee and the central government will be to build up information technology (IT) platform and infrastructure. The major responsibilities of IT infrastructural requirement will be shared by the central government through the use of its own IT infrastructure facility. The tax information network (TIN) system, built by NSDL for income-tax would be a right base for implementing the GST. Since TIN already reaches to over a million entities and this can be easily done.

The Union government is also working in the direction of building strong IT infrastructure base before introduction of GST. The Finance Minister in his budget speech said, "To achieve the roll-out of GST by April 2011, the indirect tax administrations at the Centre and the States need to revamp their internal work processes based on the use of Information Technology. I am happy to inform Hon’ble Members that project ACES - Automation of Central Excise & Service Tax, has already been rolled out throughout the country this year. This will impart greater transparency in tax administration and improve the delivery of taxpayer services. Similarly, a Mission Mode Project for computerization of Commercial Taxes in States has been approved recently. With an outlay of ₹ 1133 crore of which the Centre’s share is ₹ 800 crore, the project will lay the foundation for the launch of GST."

States don't possess an adequate IT infrastructure base in comparison to the Centre. It would create a great mess during functioning of IGST model. Hence, states should be equally equipped before introduction of goods and services tax. States should be merged into TIN, one by one, at an administrative level so that they get themselves accustomed with this network. While doing this state VAT should be kept apart.

Conclusion:

The system of IT infrastructure would be of much importance in the GST regime. If we will go into common market without adequate preparation and without a minimum level of e-governance across the states, there would be serious difficulties. So the government of India should take special measures to introduce computerization in tax administration in all states. Since new software application will have to be developed and installed within a short span of time there may be possibility of errors. It may take few years for settling down.

LAWCRUX TEAM

Import export trade, Custom duty, Central excise duty, GST, Indirect tax services, indirect tax, advance license, foreign trade policy, tax planning, e-book, EOU, SEZ, NEPZ, EPCG, DFRC, CBCC, DGFT, DEPB

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Author: Nagesh Bajaj

LawCrux Advisors (P) Ltd.

Law House