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GST - States for band rates and no DSA; GST Network 'nets' ownership controversy

TIOL - COB( WEB) - 329
JANUARY 31, 2013

By Shailendra Kumar, Editor

THE GST is once again back in news. Although the GST has been billed by experts as the one that represents the unity of fiscal spirit of Indian federalism but every time the Empowered Committee of State Finance Ministers and the representatives of the Union Government, meet at some venue and then announce their so-called breakthroughs, it truly appears that the GST-dream has moved a few miles away from all the stake-holders. When I had consulted some 'individuals' having expertise in deciphering the 'chemistry of palmistry' for GST roll-out, a few months back, I was told that the gestation period for 'conceiving' a Model GST system is going to be governed by multiple distinctively different political phases. At times, some of the 'limbs' acquired or formed by the 'conceived entity' may be 'aborted'. And I find substantive elements of truth in the prognoses of GST-palm readers if we go by the outcome of the two-day conclave at Bhubaneshwar.

While briefing the media persons the EC's Chairman, Mr Sushil Kumar Modi, revealed that they have arrived at a broad agreement over NOT a single rate for GST but a floor rate with a band! If it is so, some of the initial understandings arrived at clearly stand aborted. Netizens may recall the heydays of Mr Pranab Mukherjee as the Finance Minister and Mr Asim Dasgupta as the EC's mascot. Their entire efforts were geared towards having a single GST rate or at best two rates - one for the essential goods and the other for non-essential. But now, it seems the States are more keen to follow the VAT roadmap where they have the liberty to toy with the sanctity of uniform rates as per the canvas of their own fiscal profligacy index. It seems the Union Government has also agreed to this idea, perhaps only to thaw the ice rather than its self-belief to convince the States about the strength of having a single rate.

Another significant change to which a consensus has been developed is that the conceptually strong forum of dispute resolution incorporated in the GST Bill - the Dispute Settlement Authority, is now destined to find a place in the dustbin of rejected legislative provisions. And the work assigned to the to-be-guillotined DSA is now proposed to be handled by the GST Council. Originally, the GST Council was to deliberate and debate over only broad policy issues. But it would now also handle disputes, which are going to seek massive change in the configuration of Council's character. One may well imagine what would be the scenario inside the GST Council venue when efforts would be made along political lines to resolve a dispute by consensus rather than by constitutional authority. In all probability, the proposed GST Council headed by the Union Finance Minister may look more like a desecrated floor of any State Assembly rather than a body to enforce fiscal sanity.

Worse was indeed yet to come, and it finally landed up in Bhubaneshwar. As per the text of the announcement, the EC has also decided to seek amendment in the Constitutional Amendment Bill for GST whereby if a State decides to walk out of the GST net, it would have the 'divine right' to do so. If it is so, it would mean that the States want to vest themselves with inviolable right to create fiscal anarchy in the economy. How can one evolve a system when each component of that organic system would have the laissez faire liberalism to part ways and disrupt the Network! In other words, if a particular State fails to evolve a desired consensus with a pre-conceived shade of political hue at the GST Council, which is going to resolve a dispute, the State concerned would not require any shade of audacity to demonstrate its pugnacity and coolly walk out of the GST net!!!

Going by some of the pink newspapers detailed coverage, which described these decisions as historic, I fail to understand from which angle such legless decisions are historic and far-reaching. By all permutations and combinations, these decisions do not enable the GST-cart to move even a few inches where the Union Finance Minister could make a fresh statement about its possible roll-out in the near future. Going by the first day deliberations where the Centre agreed to Rs 34000 Cr compensation package, it appears that the entire State FMs' jamboree was fully prepared to bag the compensation for CST phase-out rather than to demonstrate their commitment to the biggest indirect taxes reforms efforts.

In this background, yet another flawless public facade in the form of GST Network (GSTN) is being developed. No doubt, no GST can even be imagined without a GST Network, which is going to handle anywhere between 60 to 70 lakh registrations. But when no limbs of the system have been concretised, what sort of platform or software can be developed at this stage. It appears that huge efforts are being made to put the cart before the horse! To create this facade, even the Cabinet approval has been taken to pump in Rs 350 Crore. Netizens may recall, the Union Cabinet had last year given approval for creating a Special Purpose Vehicle (SPV) in which the majority equity was decided to be offered to private stake-holders and 49% of stake to be shared between the Centre and the States. Among the private equity holders, NSDL is going to hold 21% stake and the rest 30% to be held by banks and other institutions. It is learnt that one of such stakeholders has come under scrutiny of overseas revenue authorities for alleged tax evasion. If it is true, then the Government needs to develop strict filters for selecting potential partners for the GSTN.

But the major question, which has gone unanswered even before the Cabinet is that how sagacious would be the decision to allow a private player to own the repository right to the GST data warehouse. I believe the Cabinet was informed that such a practice was followed by the CBDT as well. But there is no element of truth in such briefing. The CBDT had initially proposed an SPV format but the same was later strongly opposed, and then converted into a Society Model, which was approved by the former Finance Minister. In other words, the Income Tax Department has all the proprietary rights over the data being used either by NSDL or Infosys at the CPC. So, if the Union Cabinet was briefed that the GST is going to follow the CBDT model, it is not correct. I was told that the Cabinet was also cited the example of Felixstowe Port in the UK, which has allowed the outsourced company to own the rights over the data warehouse. Although a detailed googling did not provide the required inputs, even if it is true, a model followed by a port authority cannot be imported to manage the sensitive tax related data of a sovereign state. In fact, my efforts to locate a country, which may have supported such a proposition, did not bear any fruit.

If one reads the Press Release issued by the PIB, immediately after the Cabinet Approval of the GST Network, the Government is going to have strategic control over the SPV. And what does the expression 'strategic' mean? It is learnt from the Govt sources that the word 'strategic' means greater representation of the Union and States Governments in the various committees, which would be taking critical policy and business decisions. That is fine. But nowhere in any meeting the issue of repository rights over GST data has been debated. On this ground only, two of the CBEC Members, who had attended the meetings of the Empowered Group on IT Infrastructure for GST, had opposed the idea of offering 51% equity to private players. Even in the last meeting of the CBEC Full Board in December, 2012, no decision could be taken on this issue. When the CBEC, a major stakeholder, in the GST roll-out is not yet convinced, who took the Cabinet approval for 51% equity, is a major mystery? Does it not amount to misleading the Union Cabinet?

True, merely because the SPV is going to be led by private players, one need not see many ills in it. Control by private players would certainly provide the necessary leverage to take quicker decisions; avoid CAG audit and hire quality IT professionals at market rates but this does not mean that the Government should forfeit its repository right to GST sensitive revenue data. Even while floating an SPV it can have the proprietary rights over the data, which is desirable and futuristic for any revenue administration, and the present Finance Minister, who is known for his foresight, should definitely look into this issue.

Interestingly, it is learnt that even as the larger framework of the GSTN continues to be nebulous, the CBEC has shortlisted a few names for the post of CEO of this new body. But it would be too early to appoint any CEO at this stage unless Mr Nandan Nilekani is too keen to do so!

In a nutshell, the GST roll-out continues to be a 'hard reality' for which no deadline can be set now. Although all indirect taxpayers know that India would be going for the GST sooner or later, this is besides the Finance Minister's promises to foreign investors for early roll-out, but all the stake-holders, including the India Inc, need to sweat more and cool their heels before it becomes a reality post-2014.