TIOL - COB(WEB) - 541
FEBRUARY 16, 2017

By Shailendra Kumar, Editor

THE most powerful regulator of indirect taxes reform in India - the GST Council - is slated to meet again on coming Saturday. Although the first and the foremost agenda item was expected to be the endorsement of the legally-vetted draft of the GST Model Laws but inputs collected from the Ministry of Law indicate that the exercise of vetting would take at least two to three more weeks before the same is presented before the Council. This largely means that the Council would have to meet again before the Budget Session of Parliament resumes on March 9, 2017. This also means that the presentation of the Drafts of the GST Model Laws would be delayed by a couple of weeks and may be stretched to the fag-end of the Budget Session. If that happens, the Government would have to demonstrate some elements of craftsmanship and floor management to rush through the Bills.

So, what is the Council going to do this time? It is expected that the Council would apply its mind to some of the pending issues like the constitution of National GST Appellate Tribunal, the number of its Benches, the much-talked about anti-profiteering provisions which have invited the ire of well informed critics and the finalisation of definition of some of the critical expressions like 'agriculturist' and 'agriculture'. There is also a likelihood that the Council may like to revisit its decision on sharing of assessee-base below Rs 1.5 Crore threshold. The fact that coordination and cooperation have been the hallmark of the Council's proceedings so far, I am sure it would not like to 'spoil the broth' by cornering a major share of the tax base for the States alone. A lop-sided distribution of 90:10 ratio is not only unjustifiable if the Centre and the States are to be seen as the two close partners but even from the perspective of the distribution of workload and cooperation among the Central and State officials. For smooth implementation of the GST it is important that the Central and the State officials work together and do everything hand in hand. Else, the only victim would be the assessee if the two 'titans' do not see eye to eye!!

A decision not to review the 90:10 ratio would be the third cardinal error committed by the GST Council. The second such error was the decision to cross-empower State VAT officials under the IGST {See previous Cob(Web)}. And the first error, not necessarily of the GST Council but of the collective body which preceded the GST Council, the Empowered Committee of State Finance Ministers, was the decision to allow the GST Network to be a private company. It is well known that a good amount of lobbying preceded the Cabinet decision to endorse the formation of SPV under Section 25 of the Companies Act 1956 in 2012. In fact, to be precise, a tug of war had also persisted over the questions of private players holding majority stake when Mr Nandan Nilekani was one of the most powerful influencers of the Cabinet decisions. The CBEC as a collective body had also opposed it but one of its Members had supported this proposal when the idea of CBEC Member being appointed as its CEO was floated. But it was a mere bait and the same is substantiated by the fact that both the posts of the Chairman and the CEO are held by retired officers of the Indian Administrative Service rather than those who have spent decades enforcing indirect taxes in India.

Anyway, the latest to add to the 'dormant' controversy is the GSTN refusal to allow entry of CAG officials in its premises. With the Centre and the States reportedly contributing more than Rs 4000 Crore to this private body and the fact that private players not chipping in any sum so far if one goes by Mr Subramaian Swamy's letter written to the Prime Minister, it has so far been an unfair business. In fact even the Department of Expenditure had flagged allocation of non-plan funds to this body when it noticed glaring absence of accountability when the taxpayers' money was being allocated. Strangely, in a reply to a Parliament question, it has been stated that no security clearance was sought from the Ministry of Home Affairs before such a decision was taken. But why? Probably because it was designed to be a private company. So, none saw merit in seeking security clearance. Similarly, to avoid CAG audit which often deters government officials from taking decisions on merit, it was decided to retain its character largely of a private company. But, while deciding so, the decision-makers have probably offered a carte blanche to the GSTN Management which appears to be spending lots of money on handsome salary and productivity-linked incentives. All these perks and remunerations are probably acceptable provided there are matching responsibilities and obligations. But, they are evidently missing.

The Centre and the States and even the GST Council are busy finalising the GST Model Law but they seem to have forgotten that the success of the GST implementation largely hinges on the success of the GST Network. The tax technology is the most critical element of this indirect tax reform. And who is responsible for this tax technology? Obviously, the GST Network! But where are the contracts detailing its responsibilities and obligations? Has the Centre and the States entered into any sort of contract with the GSTN with respect to the repository right to the GST data warehouse? How is the confidentiality of taxpayers' data going to be guarded? Is there any Plan B if the GST Network fails? Is the GST Network more than a Managed Service Provider? When everything is being done by Infosys, the larger burden under the contract obviously falls on them, and the GSTN would have no answer to a disaster situation. Should India really plan its biggest indirect tax reform in such an ill-mannered way? Was the Centre really convinced that the CBEC's Directorate of Systems could not have done it? If yes, was there no other government agency which could have done it? Why was the CBDT model not followed? Was it rejected on merit? When the Centre had the evidence of a nicely working CBDT model where was the persuasion to experiment with a new 'horse' and that too, completely unbridled and unobligated!!

There is apparently, in principle, nothing wrong if the majority shareholding is in the hand of private institutions. But, what is wrong in this case is that the Ministry of Finance completely washed its hands of all obligations to list out responsibilities of this private body. A matrix of obligations should have been drafted and inked to make it a legal obligation. A matching performance guarantee clause should have been there against the public funds being given to them as their seed capital or non-recurring grants for their initial expenditure. Since the top babus in the Ministry of Finance and even the States knew that the GSTN was going to be the repository of all critical data, there should have been an agreement vesting proprietary right of all such data into the Centre and the States. Is it not a case of serious lapse on the part of the then Revenue Secretary and other decisions makers? Post-2008, the fiscal landscape worldover has undergone a dramatic change. And, even as tax jurisdictions across the world have been negotiating automatic exchange of tax information, the body of taxpayers have been fighting for the right to financial privacy. When the fact of the matter is that personal information from a tax body cannot be obtained even under RTI Act, 2005, here we have a corporate body which may pass on information without any fear or favour. In fact, some of the taxpayers have also argued in favour of such a right being treated as a part of human rights! Against such heightened sensitivity about financial information in the civilised world, is it not obligatory on the part of the Centre and the States to put in place a reliable framework for protecting the fiscal data of the assessees? In this background only, one may see merits in the allegations made by Dr Swamy who favours government ownership of such a body implementing critical tax reforms. Even the Rajya Sabha Select Committee had favoured that the majority equity should be held by the Centre and the States.

But, strangely, the NDA Government which tends to trace the strands of this decision to the UPA Government, has also not done anything to correct this error. If Mr Arun Jaitley has everything on record to point an accusing finger at Mr P Chidambaram, then he is also under legal obligation to rectify the error committed in the past. He is accountable to answer the questions of the taxpayers who would like their data being kept confidential unless there is a pressing reason for disclosing the same. Banking on GST Network for successful implementation of GST without a legal obligation may turn out to be a recipe for disaster. The fact that no pilot has been run so far; no software has been developed to facilitate automatic migration of existing taxpayers (phased drive being conducted and the onus being put on taxpayers to upload their data without any legal mandate so far) and also the fact that the recent demonstration or training conducted by the GSTN vendor in Bangalore was not found to be impressive, it is evidenced that the mega indirect tax reform may bump into mega technology barrier which may derail all the legislative spadework done so far. What would happen if the critical hands of the GSTN leave this organisation tomorrow? Can the Centre stop them from leaving? Perhaps NO. It is also true that none would leave such a lucrative platform particularly when they are not legally obligated or chained to ensure matching performance. It is also important to have PLAN B if Infosys fails and GSTN cuts a sorry figure! Should our reform process proceed in such a manner? Perhaps NO. But the Centre and the States which hold 49% equity (and left the majority share to private players for the sake of greater flexibility) are certainly accountable to the public at large and they need to come out clean if they have done enough to ensure that the GSTN does not fail and if it fails, there is a PLAN B in place! I sincerely urge the GST Council to apply its mind to this issue at its Saturday meeting.