With GST launch, race against time to avoid sales tax upheaval across India
India is scrambling to finalize technology to process as many as 3.5 billion invoices each month as it moves to roll out the landmark goods and services tax (GST) from 1 July.
The success of one of the world’s largest and most complex tax reforms depends on the glitch-free performance of the goods and services tax network (GSTN)—the IT backbone of the new system that will eliminate a complex web of state and federal taxes and make India a unified market.
The system is expected to process 3.5 billion invoices every month, with the country’s 8 million direct taxpayers required to file up to 37 tax returns in a year.
Built over the last two years, it’s designed to be the common interface for federal and state governments, taxpayers, tax authorities and banks, chairman of the GSTN Navin Kumar said in an interview.
“India’s GST is the most complex of all the countries which have implemented GST,” Kumar said, noting that work on the system began two years ago when the only available guidance available was draft laws. “Despite not having all the input, we have been working on it and we will be ready by July.”
India’s Parliament in April passed four bills to implement the tax, while the GST Council has finalized rules regarding tax refund, registration, invoice debit and credit. Those relating to input-tax credit, valuation, transitional provisions and composition will be finalized at the next GST Council meeting scheduled for 18 May, finance minister Arun Jaitley said on 31 March.
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The sales tax will replace more than a dozen levies at the federal and state level, which the government says will reduce the cost of production and promote the free flow of trade in one of the world’s fastest-growing economies that’s home to 1.3 billion consumers.
It’s through this common GST portal that new users will register for the new tax system and existing taxpayers will migrate to file returns. However this is only the front end of the system. In the back end it will connect to all tax departments, which will also need to be upgraded to communicate with the GST system, Kumar said.
It’s also expected to give a significant boost to the low taxpayer base in India, where only 8 million pay taxes, largely due to systematic corruption and the massive size of informal and unorganized sector in India.
Skeptics warn that a poorly prepared IT system will lead to country-wide chaos.
“After July 1, half of the people will fail to comply with the new system, especially small units and services industry as they won’t be ready,” said Sachin Menon, partner and head of indirect taxes at KPMG India. “Now when rules are not ready yet, how can you expect the GSTN to be fully prepared by July?”
Kumar defended the system, saying although it was a challenge to make the software without the taxation rules, it would be ready by the implementation date and would have its beta launch from May to check for any loopholes and strengthen the technology.
However one council member of the Institute of Chartered Accountants of India, the country’s accounting regulator, said because there is still no clarity on rules it is ambitious to expect the GSTN to be ready by the implementation date. He cannot be identified as he is not authorized to speak to media.
M. Veerappa Moily, a lawmaker of the opposition Congress party, which initially proposed the tax in 2006 when it held power, has cautioned the government that rushing the GST roll out could create a “technological nightmare” for businesses.
“One nation-one tax—it’s only a myth,” Moily said in parliament on 29 March, referring to the multiple tax slabs under the proposal. “Intentions are very good. But ultimately we are landing this country in areas of tax distortion and that can be anarchy.”