29 May, 2020

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The Background Of GST In India: How Is The Network Built?

India’s most significant tax reform, Goods and Service Tax, was built to help modernize India as Asia’s third-largest economy. The dream was to unify the $2 trillion economy with 1.3 billion people into a single market. GST came into effect on 1st July 2017. This is a pathbreaking way for a new common national market that replaced several cascading indirect taxes levied by state and central governments. The first country to implement GST was France in1954. Around 160 countries have implemented the GST system so far. The initial framework of GST in India formed 19 years ago. The first move on implementation of GST in India began on 17th June 2000 under the then Vajpayee Government. On 12th August 2016, Assam became the first state to pass GST. On 23rd September 2016, Goods and Services Network (GSTN) was formed. It was not close to the form that can be seen today. There was no GST portal where you can check GST applicant status or pay taxes on the go. But the vision was there to solve problems and questions of businessmen and consumers.

The background

The very idea of implementing Goods and services tax (GST) in India started during a meeting held in 1999 between the then prime minister Atal Bihari Vajpayee and his economic panel. This panel included three former RBI governors, namely, C Rangarajan, Bimal Jalan, and IG Patel. 

  • On 17th July 2000, the government set up the empowered committee (EC) of state of finance to create and design a nation GST model. Members of this committee included state finance ministers of Madhya Pradesh, Maharashtra, Punjab, Uttar Pradesh, Karnataka, Gujarat, Meghalaya, and Delhi. This committee that had formulated the design of State Value Added Tax (VAT) was requested to propose a roadmap and structure of GST with some important objectives. 
  • In 2003 the government formed a task force to endorse tax reforms. During 2006 the then Finance Minister P. Chidambaram continued work on GST and proposed 1st April 2010 as the deadline for implementing GST across India.
  • On 10th May 2007, A Joint Working Group on GST was formed. It submitted a report to the Empowered Committee(EC) on 19th November 2007. The next year EC finalized its view on GST and submitted its report.
  • In 2010 the then Finance Minister announced that GST would be implemented from April 2011. It was in 2011 the 115th Constitution Amendment Bill was introduced in Lok sabha. 
  • In the year 2014, after the formation of the NDA government, the GST bill was reintroduced. In 2015 the deadline for GST was set for 1st April 2016. 
  • During 2016 Rajya sabha passed GST. And after a few quick reviews, changes and some hurdles GST was implemented on 7th July 2017. With the implementation of GST all over India, the government set up GSTN with the main purpose of creating a portal/website for all GST related stakeholders, concerned parties, taxpayers, and the government to collaborate on one single platform. 

Creation of GSTN

GSTN or Goods and Services Tax Network started as a non-government, private limited company under section 8 of new companies act, incorporated on 28th March 2013. It was partly owned by private sector banks and institutions and partially owned by the central government. In September of 2015, IT giant Infosys was given the contract to develop the technological backend of GSTN. It was first chaired by Navin Kumar. The purpose behind the formation of GSTN was to provide a one-stop IT interface for serving the needs of stakeholders. Its functions included Assessment, Approval of Registration, IGST settlements, Refund, Recovery, Analytics, etc. 

The GSTN was adopted after the approval of the Union Government and the Finance Ministers of states. GSTN’s equity share was 41% held by the government and 51% owned by private players. Recently, The CEO of the GSTN Mr.Prakash Kumar made an announcement to make Goods and Services Network ( GSTN) into a fully government-owned organization from a private limited company. It is expected to happen by the middle of 2020.

Several states have already finished purchasing shares from the existing private shareholders, and the company is pestering other states to complete the process quickly. In a drive to make GSTN fully government company, states have already bought two-third shares from the banks. States are being reminded to buy the remaining one-third shares. Once it is done, the ministry of corporate affairs will be approached for approval, following which it will be wholly owned by the government. With full control over GSTN, there will not be any influence of a private company over the sensitive data of taxpayers and companies.

What GSTN does and how its functions

GSTN provides quick access for authorities of every transaction that happens, and it also gives taxpayers information about everything related to their tax needs. It is an advanced mechanism that is equipped with technologically advanced systems. It addresses various issues and handles several tasks with ease at any given point in time. Few functions that GSTN addresses are mentioned below.

Security: As there is crucial data of taxpayers and companies connected with GSTN, the security system is robust and equipped to defend any cyber attack. It is extremely difficult to hack into its system. The government announced it is an offense to hack into GSTN. Hacking into the GST database and its associated infrastructure dependencies installed at GST Network (GSTN) can now lead to 10-year imprisonment, as the assets have been declared as ‘protected systems’ by the finance ministry, under the IT Act. Any incapacitation with the database of GSTN will be considered an offense to the national security, economy, public health, and anyone responsible for it will be punishable with 10 years of imprisonment or more along with a fine. 

Dedicated Tax Network: GSTN is a compilation of very complex and massive information and heavy software. It provides access to the whole country and maintains a database that is shared by Central Governments, State Governments, Banks, RBI and common taxpayers all at once and to handle such a significant task, a dedicated network and infrastructure are put in place that works at light speed without any lag. It is designed to handle any natural disaster by placing servers in different places.

Conclusion

Goods and Services tax, which started as an idea to modernize and develop the Indian economy, has come very far in terms of the changes that it has seen and the technology that it uses now. It has totally removed the hurdles of several registrations and taxes that were there earlier and created a quick solution through its online portal. You can log into the GST portal and check your taxes, GST application status, or any other tax-related queries within seconds from anywhere with just an internet-enabled device. Implementation of GST was a very important milestone towards making India one of the leading economies of the world.

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