GSTN- How far is privatization justified?

[Pradeep Jain]

Introduction-

Already so controversial bill of Goods and Service Tax (GST­­) had another controversy attached to it when The Empowered Committee (EC) of State Finance Ministers decided to incorporate Goods and Services Tax Network (GSTN), a Section 25 (not-for-profit), non-Government, Private Limited Company to provide IT infrastructure for implementation of GST. The main objective associated with formation of GSTN was creation of database. It will keep record of all the assessees and would connect the databases of the centre and all the states thereby comprising a large amount of sensitive and critical information. Along with providing a common portal to all the assessees associated with GST, it would also prove to be a beneficial platform for all the stakeholders. In this piece of diction, the authors have tried to put a light on the pros and cons of privatization of GST Network.

The history:-

It was the speech of Budget, 2010-11 when the then Finance Minister – Shri Pranab Mukherjee announced the setting up of a “Technical Advisory Group for Unique Projects” (TAGUP). TAGUP was set up under the chairmanship of Shri Nandan Nilekani for taking up the technological and system related issues in respect of five projects including GST. It was the report of TAGUP submitted in January, 2011 which suggested that the task of handling the IT related issues in respect of these five projects should be handed over to a class of institutions called “National Information Utilities” (NIU). It was also suggested that the NIU will be the reporting authority to government and it will further contract to vendors in market for specialized IT related services.

Later on, in July, 2010; Shri Pranab Mukherjee with the assent of EC set up an Empowered Group on IT Infrastructure for GST (EG-IT) which was also headed by Shri Nandan Nilekani. It was dedicated group which was entrusted the job to look into technological needs for implementing GST. It is worth mentioning here that TAGUP was responsible for making recommendations in respect of five projects already identified at the time of announcing budget, 2010-11 while EG-IT was responsible to work upon GST network only.

Based on the reports of these two groups, it was decided that:-

• NIU for GSTN should be incorporated as a non-government, not for profit (section 25), Private Limited Company registered under the Companies Act, 1956.
• Government’s share in equity should be 49%; being 24.5% of Centre and 24.5% of State.
• Total private ownership should be 51%.
• No single private entity should hold more than 10% of equity.

Thus, basically, the GSTN is to be in the hands of private sector with 51% of shares.

The main concern- Arguments against privatization:-

Everything relating to GSTN was not so agitating until it was revealed that 51% of the shareholding of GSTN would lie in the hands of private sector. The privatization of GSTN is more threatening as GSTN would be a storehouse of a large amount of critical information. Thus, a majority private shareholding of such company means the critical information of about 6 million taxpayers is in the hands of private players. GSTN has been incorporated as a not-for- profit Section 25 Company. It is a well known fact that private sector works only for profit. It is quite unusual for a private sector entity to invest for public welfare. This very fact induces a serious question as to why is private sector investing in a not-for-profit Company? Certainly, some kinds of incentives or interests must be associated with the investment. And when it is clearly evident that no monetary benefit is going to emerge out of it, it would not be wrong to assume the presence some bigger non-monetary incentives. Or rather, it can be said that the availability of such critical data relating to the taxpayers itself is the biggest advantage associated with it. This threat alone is the major cause of concerns of people arguing against the privatization of GSTN. Going by the above arguments, it can be safely opined that such critical information relating to taxpayers must not be given in the hands of such private entities. Here, it would be appropriate to mention the concern raised by the Select Committee of Rajya Sabha which noted that Non-Government shareholding of GSTN is dominated by private banks. This was found undesirable because of two reasons:

• Firstly, public sector banks have more than 70% share in total credit lending of the country.
• Secondly, GSTN’s work is of strategic importance to the country and the firm would be a repository of a lot of sensitive data on business entities across the country.

The objections raised by the Committee are quite obvious and they simply cannot be ignored in the light of the fact that GSTN would be a database of almost every significant transaction being carried out in the economy. The logic behind private shareholding of GSTN is beyond understanding when the public sector banks and NBFCs have the requisite amount of capital as well as managerial efficiencies to take care of such sensitive data. Such database can be a reason of wonders, as well as blunders, depending upon the purpose for which it is used.

The taxation system of any country is always considered to be the safest when it is under control of the state. Handing over the control of such sensitive data in the hands of the private sector is itself the biggest threat to the economy. A glance at the history symbolizes that no country has ever been able to achieve the growth standards by letting the private sector take control of the taxation system, or even a part of it. Then how do we expect such model to succeed in India? And who shall be held responsible if such data is made use of in a prejudiced manner? How shall the government ensure the economic security of nation if such data is misused by the private entities to get benefit out of it?

At this stage, it must be noted that concerns had been raised even by the CBEC regarding ownership and security of such sensitive and confidential data in the dominion of private sector owned GSTN but it was later decided not to question the decision of the empowered committee. This concern was not considered before proceeding with the registration of GSTN, ignoring the fact that CBEC is the most important stakeholder in this transitive tax revolution. What induces more questions is that GSTN, being a private company, shall be out of the ambit of CAG. Considering the above arguments, it would not be wrong to question the security and confidentiality of the critical taxpayers’ database.

Another concern which hits our mind is that- is this “DIGITAL INDIA” campaign all about? On one hand, all the government departments are being planned to be digitized, and on the other, the ownership of taxpayers’ database is being given in the hands of private players. What good shall emerge out of this campaign when the economic security of the country itself lies in threat? Modi Sarkar needs to preach what it speaks. Digital India campaign and GST need to go hand in hand. It is important for the State to understand that change in work culture does not necessarily involve privatization of the taxpayers’ database. Better management capabilities amongst private sector does not mean that economic security of nation be kept at stake.

Why privatization?

What could be the possible reasons behind private equity in GSTN? Is it indicating towards the government’s inability to efficiently manage the biggest tax revolution of the nation? Is the government trying to shed off its responsibilities? Why does the government want to keep GSTN out of the ambit of CAG? The private ownership of GSTN has left an endless list of questions. Authors of this article have tried to search answers to these questions, which may perhaps justify the privatization of GSTN:-

• The current proposed structure of GSTN is based upon the recommendations of TAGUP and EG-IT which had given their reports after in-depth research and a no. of rounds of discussions.
• The government departments in India are heading towards digitalization. A large no. of governmental projects are being developed within the department or have been outsourced to technological service providers, normally operating at small level. However, the outcomes from these projects have not been able to meet the requirements due to a no. of reasons like lack of financial resources, use of old technology, cost-related issues, lack of competent persons, etc. In order to overcome these defects and to take benefit of private super-specialized professionals, this step of privatization has been taken to assist the most important indirect tax reform ever.

In order to derive benefit out of privatization of GSTN alongwith ensuring the data security and information leakage; Empowered Committee (EC) has suggested some measures which have been discussed here in subsequent para.

Privatization alongwith data security – EC’s outlook:-

The probable threats of leakage of sensitive information were being answered by EC while deciding the final proposed structure of GSTN. These suggestions/clarifications given by EC are discussed as follows:-

• EC has clarified that concerns regarding the data security will be addressed by incorporating related provisions in the Articles of Association of the company entrusted with GSTN.
• EC has also clarified that the Chairman of GSTN would be appointed by Government. Also, as stated earlier, no single private entity will own more than 10% of equity while Centre and State will own 24.5% equity each. Thus, ultimate control will vest with government anyways. Further, a monitoring committee headed by Revenue Secretary was also proposed to be constituted to review the working of GSTN.
• EC also stated that the GSTN will be bound to follow the internationally accepted security and safety measures of protecting the data leakage. Also, it was proposed to appoint a Chief Information Security officer on deputation by Government to look into the matters related to information security.
• EC also clarified that the audits of GSTN would be conducted by the independent auditors, including the professional personnel designated for carrying out technology reviews and giving suggestions thereupon.

The above stated justifications were given by EC in respect of information protection mechanism while finalizing the model of GSTN. However, these are the least discussed in the GST galleries.

Conclusion-

While the idea of GSTN is an innovative one, the private ownership of the company has been a major cause of concern. Though EC has tried its best to justify the privatization of GSTN, yet, it is human nature to be threatened with every new reform until it gets settled. The rising talks about privatization of GSTN in the town indicate that this issue will agitate further. Thus, it seems better to avoid conflicts and give peace to a no. of stakeholders’ minds by simply keeping at least 51% ownership of the GSTN be left in the hands of government, government companies or public sector banks. As it has been said- “Prevention is better than cure”, it’s time for the government to consider the security issue involved with private ownership of GSTN and eradicate the threats before it’s too late.

Discussions to this article

[KASTURI SETHI]

Sir,

I am all praise for this article. It has not only enriched my knowledge but it is timely advice and warning to Govt. of India in the interest of nation. As you have mentioned human nature, data is also not safe in Govt. departments but data in Govt. hands is far better. By writing this article you have performed your moral duty towards our nation.