India scrambles to ready IT backbone for GST rollout

Mumbai's financial district skyline in India.
Mumbai's financial district skyline in India.PHOTO: REUTERS

Up to 3.5 billion invoices are expected to be processed each month, starting in July

NEW DELHI • India is scrambling to finalise the technology to process as many as 3.5 billion invoices each month as it moves to roll out a landmark nationwide sales tax from July 1.

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.

Built over the last two years, it is designed to be the common interface for federal and state governments, taxpayers, the tax authorities and banks, Mr Navin Kumar, chairman of the GSTN, said in an interview.

"India's GST is the most complex of all the countries which have implemented GST," Mr Kumar said, noting that work on the system began two years ago, when the only 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 passed four Bills this month to implement the tax, while the GST Council has finalised rules regarding tax refunds, registration, invoice debits and credits.

  • INDIA'S NEW GOODS AND SERVICES TAX IN NUMBERS

  • 3.5 BILLION

    Number of invoices to be processed in a month using the new goods and services tax (GST) network

  • 37

    Number of returns a direct taxpayer will have to file every year

  • 33

    Number of GST Acts that had to be passed across India to enforce the new tax rules

  • 4

    The number of tax tiers under the new GST

  • 5 %

    The rate of tax for essential items

  • 28%

    The rate of tax for luxury goods

The rules relating to input-tax credit, valuation, transitional provisions and composition will be finalised at the next GST Council meeting on May 18, Finance Minister Arun Jaitley said on March 31.

The sales tax will replace more than a dozen levies at the federal and state levels, which the government says will reduce the cost of production and promote free flow of trade in one of the world's fastest-growing economies, which is home to 1.3 billion consumers.

It is 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, Mr Kumar said.

It is also expected to give a significant boost to the low taxpayer base in India, where only eight million pay taxes, largely due to systematic corruption and the massive size of the informal and unorganised sector in India.

Sceptics 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 the services industry, as they won't be ready," said Mr 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?"

Mr M. Veerappa Moily, a lawmaker of the opposition Congress party, said in Parliament on March 29: "One nation, one tax - it's only a myth." He was 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."

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A version of this article appeared in the print edition of The Straits Times on April 28, 2017, with the headline 'India scrambles to ready IT backbone for GST rollout'. Print Edition | Subscribe