Monday, August 02, 2010

Implementing the GST

For many years, India has been in a slow processes of evolving towards a dual centre-state GST. The rough picture is one with two distinct but harmonised taxes, which have an integrated IT system so as to sharply reduce compliance costs. A key dimension is that of properly integrating domestic taxation with international trade in goods and services, by zero-rating exports (thus exempting non-residents) and by charging the GST upon imports (thus taxing the full consumption of residents).

This process has faced two challenges: politics and administration. On the political side, the puzzle lies in having enough states sign up into a system where all taxes other than the GST are abolished, and where firms face an integrated nationwide administration. This would enable a unified Indian common market. Things seem to be going badly on that front.

The administrative challenge is one of project management. The Indian policy landscape contains many important ideas where the political hurdles have been crossed, but where execution has been lacking.
Today there is news of a concete project management strategy for the GST: see this story by Surabhi Agarwal in the Mint. So while there might be many failures on the political side of the GST, atleast we now know that there will be some coherent project management which will yield a working GST system within a year or two.

The idea of bringing NSDL into this problem is not new. Ever since the Tax Information Network (TIN) was built by NSDL for the income tax department, it was well understood that handling of VAT credits is much like handling of TDS. In 2004, the Task Force on Implementation of the FRBM Act, chaired by Vijay Kelkar, had said in the executive summary: ``Hence, the Task Force recommends that the existing TIN and OLTAS systems, developed by CBDT, should be used for the implementation of the GST, both at the Centre and at States.'' We wasted a lot of time in getting to this destination, but while the wheels grind slow, they have ground true. When NSE and NSDL came about in the early 1990s, we had little idea about the far-reaching consequences of what was coming together.

Also see: M. Govinda Rao in the Business Standard.

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