GSTN's Contribution to Transparency in India's

Indirect Tax System

Abstract:

GST is one of India's most important and long-awaited tax changes. It was meant to go into
effect in April 2010, but it was delayed due to political concerns and competing interests among
numerous stakeholders. GST was later applied across India on July 1, 2017. It is a
comprehensive tax system that will combine all state and federal indirect taxes, as well as a
united economy, into a single national market. It is expected to smooth out the kinks in India's
present indirect tax system and play a critical role in the country's development. GSTN is a
nationwide uniform utility that aims to make the business environment more conducive. It is
the first of five proposed NIUs that will inherit India's taxes and other financial IT services, as
well as the Tax Information Network, the National Treasury Management Agency, and the
New Pension System. GSTN provides direct services to tax payers, such as registration returns
and payments, via a "single GST portal," as well as back-end services to the federal and state
tax offices upon request. GSTN also works with private third-party service providers to build
GST-related applications and utilities, such as tax payer profiling and fraud detection software.
This article discusses how GSTN assists the government in improving its fiscal health, making
the tax collecting system more transparent, and reducing tax evasion. The goal of the study is
to learn about the benefits of GSTN in India's indirect tax administration system.

Introduction:

Tax comes from the Latin word "taxo, taxare," which meaning "to assess or estimate." Tax
revenue is the government's primary source of revenue. Direct taxes and indirect taxes are the
two types of taxes.

Direct Taxes:

Direct tax is a sort of tax in which the responsibility of payment is placed on the individual
who is required to pay the tax. The name "direct tax" comes from the fact that the government

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collects the tax directly from the individual who is subjected to it. It is cost-effective, elastic,
and equitable.

Indirect Tax:

In an indirect tax, the initial financial burden is placed on one person who is required to pay
tax, but the final burden or incidence is placed on another. In contrast to direct taxes, a person
does not pay taxes directly. When it comes to indirect taxes, one person shifts the burden on
another. It is pliable and can be imposed on a wide range of goods and persons of various
socioeconomic strata. GST, for example.

The Goods and Services Tax (GST) is a tax that applies to both goods and services. It is a
domestic trade tax that will be imposed on all goods and services in the form of a value added
tax, with some exclusions in practise.

To ensure that the tax burden is dispersed according to individual consumption, it must be
imposed on the basis of the destination principle, which states that the tax on a good should go
to the state where the concerned consumer resides. If the tax is solely imposed at the central
level, or if the state is a unitary one with just one level of taxation, this happens automatically.
If GST is imposed at the state level as well as the federal level in a federation, there are unique
challenges to overcome.

The Study's Objectives

1. The goal of this project is to learn more about the Goods and Services Tax Network
(GSTN) and how it fits within India's indirect tax administration structure.
2. To have a better understanding of how the GSTN would aid in the fight against tax
evasion in India.
3. To assess the GSTN's benefits and drawbacks.
4. To provide information for further GSTN research.

Methodology of Study:

The study focuses on explanatory research using secondary data from journals, articles,
newspapers, magazines, and publications from numerous websites that focus on various parts
of the Goods and Services Tax Network. In order to get a more accurate and rigorous analysis
of the research study, a descriptive type research design is used. Secondary data that is easily
accessible is heavily used in research studies.

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Introduction of Goods and Services Tax Network (GSTN)

GSTN stands for section 8 (not-for-profit corporations are governed by section 8 of the New
Companies Act), non-government, and private limited company. On March 28, 2013, it became
a legal entity. The government of India owns 24.5 percent of GSTN, while the Empowered
Committee of State Finance Ministers (EC) and all states of the Indian Union, including the
NCT of Delhi and Puducherry, own another 24.5 percent. The remaining 51% of the equity is
held by non-government financial institutions. The company was formed with the goal of
providing IT infrastructure and services to the federal and state governments, as well as tax
payers and other stakeholders, in order to help with the implementation of the Goods and
Services Tax (GST). The company's authorised capital is Rs. 10,000,000.00.

Review of the Literature

• Vasanthgopal (2011)1 addressed the impact of GST on several sectors of the economy in
his paper GST in India: A Big Leap in the Indirect Taxation System. The GST, according
to the report, is a significant step forward in India's economic transformation.
• The Committee on Finance's Seventy-third Report (2012-2013) The Bill to Amend the
Constitution (the One Hundred and Fifteenth Amendment) was introduced in 2011.
• Annual Report of the Good and Service Tax Network's First Annual General Meeting
(2013-14).
• “Goods and Service Tax – A Way Forward,” by Nitin Kumar (2014)2, found that the
implementation of GST in India assists in addressing economic distortions caused by the
current indirect tax system and is likely to support an unbiased tax structure that is
unaffected by geographic location.
• According to Nishitha Guptha (2014), the implementation of GST in the Indian framework
will result in commercial gains that were not available under the VAT system, and will
essentially lead to economic progress. As a result, GST may pave the way for a collective
gain for industry, trade, agriculture, and ordinary consumers, as well as the federal and state
governments.

1
Dr. R. Vasanthagopal (2011), “GST in India: A Big Leap in the Indirect Taxation System”, International
Journal
of Trade, Economics and Finance, Vol. 2, No. 2, April 2011.
2
Nitin Kumar (2014), “Goods and Service Tax in India-A Way Forward”, “Global Journal of Multidisciplinary
Studies”, Vol 3, Issue6, May 2014.

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• “Goods and Service Tax – Panacea for Indirect Tax System in India,” by Pinki, Supriya
Kamma, and Richa Verma (July 2014)3, concluded that the new government in India is
optimistic about GST implementation, and that it will benefit the central government, state
governments, and consumers in the long run if it is backed by strong IT infrastructure.
• GSTN's second Annual General Meeting Report for 2014-2015.
• The Institute of Companies Secretaries of India (ICSI) produced a Goods and Services Tax
reference in 2015 to provide detailed information on the GST idea.
• The Institute of Chartered Accountants of India’s Indirect Taxes Committee (2015) filed a
PPT titled Goods and Service Tax (GST), which detailed the GSTN and its positive impact
on the economy and many stakeholders.

Concept:

GST implementation will necessitate massive infrastructure support, including IT capabilities.

Until now, the indirect tax administrations at the federal and state levels have operated under
various laws, regulations, procedures, and forms, resulting in separate IT systems. Integrating
them for GST implementation, as well as bringing them under a whole new indirect tax system
and administration, will necessitate new institutional arrangements. The government has
established the Goods and Services Tax Network to accomplish this goal (GSTN). The Goods
and Services Tax Network (GSTN) is a non-profit private limited business that was established
to provide front-end and back-end IT and infrastructure support for the GST system's operation.

It was established as a non-profit organisation in March 2013 under the New Companies Act.
The non-government nature of the company necessitates a large stake. Governments — the
centre, states, and UTs – own 49 percent of GSTN. The central government owns 24.5 percent
of the total, while states and UTs own the remaining 24.5 percent. It has an R. 10 crore
authorised capital to develop and operate the GST IT backbone. The remaining 51 percent is
split among five financial institutions: LIC Housing Finance owns 11 percent, ICICI Bank
owns 10%, HDFC owns 10%, and NSE Strategic Investment Corporation Ltd owns 10%.

The GSTN shareholding is depicted in the pie chart below:

3
Pinki, SupriyaKamna, RichaVerma(2014), “Good and Service Tax – Panacea For Indirect Tax System In
India”,
“Tactful Management Research Journal”,Vol2, Issue 10, July2014

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 Figure 1 GSTN shareholding

Governments have more input in the management of GSTN because of the non-government
shareholding. The GSTN Board has 14 members, including the Chairman, with seven members
from the central and state governments. There are only three private shareholders. The
remaining three members are independent members and a chief executive officer nominated
by the board. This signifies that the government has strategic influence over the corporation.

The GSTN, as a back-end infrastructure support mechanism, is responsible for delivering a

well-built IT infrastructure and related services to the Central and State Governments, as well
as taxpayers and other stakeholders, in order to facilitate GST implementation. GSTN will
interface to existing tax administration IT systems and will integrate the unified GST portal.
GSTN, as a tax administration platform, is inextricably linked to existing administrative
systems.

The GSTN-developed unified GST Portal will serve as the front-end of the whole GST IT
ecosystem. GSTN's unified GST portal will process registration, payment, refund, and
MIS/report applications. CBEC (Central Board of Excise and Customs) and state tax
departments' IT systems would also serve as back-ends. Back-end operations are responsible
for tax administration functions such as registration approval, assessment, audit, adjudication,
and so on.

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GSTN in India: How Does It Work?

Third-party IT vendors known as GST Suvidha Providers develop web or mobile-based

interfaces for taxpayers to engage with the GST network. GSTN's functions include:

a. assisting with registration;

b. Filing and submitting tax returns to the central and state governments;
c. IGST computation and settlement;
d. Tax payment details are matched with the banking network;
e. Send different Management Information System reports to Governments.
f. Profile analysis of tax payers; and
g. Running the input tax credit matching engine.

Figure 2 India's GSTN structure

The Goods and Services Tax Network (GSTN) expects GSPs to provide all of the above
services to tax payers, as well as managing their own company ledgers (sales ledger and
purchase ledger) and other value-added services.

Another significant function that GSPs are supposed to provide is automatic reconciliation of
purchases completed and recorded in the purchase register, as well as data obtained from the
GST portal in the form of GSTR – 2. There will also be sector-specific or trade-specific
requirements that the GSPs are expected to meet. The following is a conceptual diagram that
depicts the situation.

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 Figure 3 GSP (GST Suvidha Provider) eco system

While the GST system will have a G2B portal for taxpayers to access the system, there will be
a wide range of tax payers (SME, Large Enterprise, Small Retail Vendor, and so on) who will
require different kinds of services, such as converting their purchase/sales register data into
GST compliant format and integrating their accounting packages/ERP with the GST system.
Similarly, GSP could meet the specialised needs of a trade industry. In short, the GSP's creative
solutions can assist taxpayers in GST compliance.

Role of GSTN in India’s Indirect Tax System

• Integration of the common GST Portal with the central/state governments' and other
stakeholders' existing tax administration systems.
• Provide a uniform PAN-based registration system that allows all states to file returns and
execute payments on a single platform.
• Facilitation, implementation, and standardisation of services to tax payers via a unified
GST site by state governments and other stakeholders.
• To promote tax compliance, create an effective and convenient interface with tax payers.
• Conduct research, examine best practises, and provide training to stakeholders.

GSTN's Challenges

• Taxpayers are unable to access the GSTN system.

• The system's reaction time is quite slow.
• Slow response time for fixing different issues that taxpayers have encountered on their
returns.

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• There is no way to correct unintended inaccuracies in the returns.
• Passwords for 60,00,000 dealers.
• The ERP system and the GST site are linked.

Key Findings

• In the new regime, a well-designed and well-functioning Information Technology (IT)

infrastructure facility would be a precondition and prerequisite for smooth administration
of taxpayers, processing of returns, controlling collections, making refunds, auditing
taxpayers, levying penalties, and so on. On the IT front, all stakeholders had agreed on a
single PAN-based taxpayer ID, a single return, and a single challan for tax payment, so a
single portal with three key services (registration, returns, and payments) would make
compliance easier.
• The GSTN was established with the following goals in mind to serve as a pass-through
interface for dealers:
1. Integration of the common GST Portal with the Central/State Governments' and other
stakeholders' existing tax administration systems.
2. Facilitation, implementation, and standardisation of services to tax payers via a unified
GST site by state governments and other stakeholders.
3. To enhance tax compliance, create effective and convenient interfaces with tax payers.
4. Conduct research, explore best practises, and provide training to stakeholders.

• GSTN has been tasked with developing, operating, and maintaining a common GST site
that would provide a common and shared IT infrastructure for Central and State
governments, banks, the CBEC, and the Reserve Bank of India, among others. It is also
proposed to digitise all documents and automate related processes, such as common PAN-
based registration, common standardised return for all taxes (with different account heads
for CGST, SGST, IGST), common standardised challan for all taxes (with different account
heads for CGST, SGST, IGST), and so on, for the sake of taxpayer uniformity of tax
administration. Each taxing authority will have complete control over how his data is used
for internal automation, integration, and enforcement.

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References:

• https://cleartax.in/s/direct-indirect-taxation-india-explained
• https://www.legalraasta.com/gst/gstn-goods-services-tax-network/
• https://ijcrt.org/papers/IJCRT2007505.pdf
• https://www.business-standard.com/article/economy-policy/examine-possibility-of-
converting-gstn-into-govt-owned-firm-fm-to-adhia-118041001348_1.html
• https://cleartax.in/s/gsp-gst-suvidha-provider
• https://www.gstzen.in/a/role-of-gstn.html
• https://www.financialexpress.com/opinion/gst-implementation-challenges-for-taxpayers-
remain-even-gstn-portal-has-problems/785131/