GSTN - The solution architecture

This is the 2nd of the 3 posts which describes IT Strategy for Implementation of GST.

A common GST portal

The solution architecture should be designed to meet the design goals for GSTN, described in the previous post. For the purpose of simplicity for taxpayers, uniformity of tax administration, digitization of all documents, and automation of related processes, it is necessary to have:

1. Common PAN-based registration 
2. Common standardized return for all taxes (with different account heads for CGST, SGST, IGST)
3. Common standardized challan for all taxes (with different account heads for CGST, SGST, IGST)

A common GST portal, operated by GSTN, is the fastest and most cost-effective way to provide common PAN-based registration, common returns, and common challans for all stakeholders. It can marry the taxpayers standard interface with the varied systems of the tax administrations. Each tax authority will have full flexibility in using this data for in-house automation, integration, and enforcement.

Basic solution architecture

Given the need for a common GST portal, the basic solution architecture is as follows:

1. Taxpayer files through a standardized taxpayer interface. 
2. States and CBEC implement tax administration systems for assessments, audits, and enforcement within their domain. This is desirable but not a pre-condition since the GSTN can provide support for states that do not have the necessary IT systems in place.
3. The taxpayer and tax authority systems are connected with a Common GST Portal, operated by GSTN.
4. Policy decisions are captured in GST Business Rules Engine that defines the tax rates, revenue sharing rules, and exceptions for all parties.

The Business Rules Engine is a component of the solution architecture that spans all entities. It codifies policies and business rules such as the rates of taxation, the revenue sharing between states and centre, a framework for exemption, and thresholds, among other things. All systems in the rest of the solution architecture will be designed so that they load business rules from the Business Rules Engine. This decoupling of the business rules from the rest of the solution architecture allows for a great deal of flexibility. At a later date, if rates are changed or new items are added to the list of taxable items, or if existing items are exempted; these changes can be reflected in the Business Rules Engine, without affecting the rest of the system. This also makes it possible to start the design and implementation of all IT systems, even while policies and rates are debated. Once the policies and rates are fixed, they can simply be reflected in the Business Rules Engine.
In addition to common registration, returns, and challans, the Common GST portal will provision for selected information needs of states.

Information Flow

The information flows are shown in Figure 5 are designed keeping the constitutional autonomy of states in mind, while simultaneously building intelligence in the system to plug leakages. The common GST portal is simply a pass-through device. The taxpayer files the return with GSTN, which keeps a copy of the return for analysis, and forwards it in near real-time to the respective state and CBEC. The taxpayer pays the actual duty in the bank, which uploads only the challan details into the GSTN. Actual funds never pass through the GSTN.
The common GST portal reconciles the returns and the challans. In addition to its pass-through role, the common GST portal also plays two other critical roles:

1. It acts as a tax booster, matching the input tax credits in the returns to detect tax evasion. It can also integrate with various other systems at MCA, CBDT for verification of PAN or other corporate information and perform data mining and pattern detection to detect tax fraud. It sends this information as alerts/ reports to the respective tax authorities. 
2. It also computes inter-state settlement, netting IGST across states.

Fund Flow

Just like the information flows, the funds flows (Figure 6) are also designed keeping the constitutional autonomy of states in mind. The design ensures smooth and timely availability of funds as soon as they are deposited. The SGST funds that are intended for the states directly go from the taxpayer to the state treasuries. Similarly, the CGST funds go directly to the centre. With the help of information from GSTN, IGST will be settled between states and centre by RBI.

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GSTN - IT Strategy for GST

Government has come up with an IT Strategy for Implementation of GST. This Post is 1st of the 3 post to state this Strategy.

This page contains 

• Desirable Features
• Stakeholders
• Workflow 
• Download IT Strategy

Desirable features of Goods & Service Tax Network (GSTN)

Simplicity for taxpayers: The process of filing of tax returns and payment of tax should be simple and uniform and should be independent of taxpayer’s location and size of business. In addition, the compliance process should not place any undue burden on the taxpayer and should be an integral part of his business process.

Respect autonomy of states: The design of the IT system should respect the constitutional autonomy of the states. Several business processes will be re-engineered as a new IT system for GST is put into place. There should be no dilution of the autonomy of states as a result of the IT system, or the re-engineering. On the contrary, it should strengthen the autonomy of states. This is a key factor in the design of the IT system presented in the rest of this document.

Uniformity of policy administration: The business processes surrounding GST need to be standardized. Uniformity of policy administration across states and centre will lead to a better taxpayer experience, and cut down costs of compliance as well as tax administration.

Enable digitization and automation of the whole chain: All the business processes surrounding GST should be automated to the extent possible, and all documents processed electronically. This will lead to faster processing and reconciliation of tax information and enable risk based scrutiny by tax authorities. For small taxpayers, facilitation centres can be set up to ease the migration.

Reduce leakages: A fully electronic GST can dramatically increase tax collections by reducing leakages. Tools such as matching the input tax credit, data mining and pattern detection will deter tax evasion and thus increase collections.

Leverage existing investments: Existing IT investments of states should be leveraged. The Mission Mode Project on Commercial Tax should be aligned with the GST implementation going forward.

Stakeholders

Small taxpayers: Much of the economic activity in India is concentrated among small taxpayers. They may not have the skill or the resources to effectively migrate to GST. Thus, adequate preparations must be done to ensure smooth migration for small taxpayers to GST. This includes extensive consultations, setting up of facilitation centres, education and training.

Corporate taxpayers: Corporate taxpayers may operate across various states and typically have sophisticated IT systems for accounting, e-filing returns, payments etc. Common file formats and message specifications should be released early to allow IT vendors that provide software to corporate taxpayers to modify and release updated versions with GST support.

State tax authorities: The state tax authorities would be responsible for collecting SGST. Common file formats, interfaces, and policy administration will enable accurate and timely assessment, and risk-based investigations resulting in enhanced productivity and revenues.

CBEC: CBEC would be responsible for collecting CGST and IGST. Common file formats, interfaces, and policy administration will increase the productivity of CBEC. It will allow for accurate and timely assessment, risk-based investigations and facilitate IGST settlement by Centre at agreed time intervals.

RBI: The Reserve Bank of India will facilitate the interface with various banks to facilitate movement of states’ and center’s funds. The processes of funds settlements and documentary compliance are independent.

Banks: Banks will accept duty from the taxpayers and process challans. All tax collections (whether physical or electronic) will happen at bank branches, or through the banks’ IT systems. Banks will route the tax collected to the concerned authorities through the RBI channel.

Other Stakeholders include CAG, GSTN, TRPs and facilitation agencies.

Workflows

The following three processes constitute the most important workflows of the GST administration and would be covered in the first phase:

Registration: A unique ID is necessary to identify each taxpayer. The PAN based ID should be common to both the states and the centre. A common PAN-based taxpayer registration has several benefits including a unified view of taxpayers for all tax authorities. A PAN based registration system has already been implemented in CBEC and several states are also capturing PAN data.

Returns: Both, the states and centre require taxpayers to file periodic returns to assess whether the taxpayers have computed, collected, and deposited their taxes correctly. ITC credit can also be verified on the basis of the returns filed and revenues reconciled against challan data from banks.

Challans: Challans are the payment instruments used by taxpayers to actually pay their taxes. Challans are deposited at collecting banks and are forwarded by them to the tax administrations.

IGST: Under GST, inter-state trade will be leviable to IGST. Under IGST, the tax paid by the selling dealer in the exporting state will be available as ITC to the purchasing dealer in the importing state. This requires verification of ITC claims and transfer of funds from one state to another. Further, in an interstate business to consumer transaction, tax collected in one state has to be transferred to another state as finalized by the business processes. Thus, periodic inter-state settlement is required.

In addition, there are several other workflows such as processing refunds, taxpayer audits, and appeals. It is reiterated that the core services envisaged through common portal are limited to registration, payments and returns in the first phase. Other value added services will be added subsequently based on the needs of the Stakeholders. The IT infrastructure should be designed taking into account all stakeholders, and all related workflows.


Apart from this, there are other important topics such as:

• Solution Architecture - A common GST portal, Basic solution architecture, Information Flow, Funds flow
• Tax booster - Tax computation and accounting and boosting tax collection

These are separately stated in other posts.

Source : IT Strategy for GST version 0.85

Download Full IT Strategy for GST in PDF

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Developments in August 2014

GST was in headlines today (21st August 2014) in Economic Times

FMs agree on Rs 10 lakh limit for levying GST

Date : 20th August 2014
State Finance Ministers on Wednesday (20th Aug 2014) pressed for lowering the threshold limit to Rs 10 lakh for imposing Goods and Service tax (GST) on entities and asked the Centre to specify GST compensation structure for five years in the Constitutional Amendment Bill. The Empowered Committee of state Finance Ministers, which met here to deliberate on various issues connected with GST rollout, regretted that it has yet to hear the response of Centre on the structure of the new tax regime proposed by it. "So far as shape of GST is concerned, we have made recommendation to Central Government after the last meeting.

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Impact of GST on Transportation and Logistics Industry

As the Indian transportation and logistics industry looks forward to the next level of growth, efficiency and sophistication, it gradually leaves behind the traditional issues pivoted around inefficiencies and regulatory challenges.

It is in this context, that regulatory reforms proposed in the form of Goods and Services Tax (GST) are much needed now than perhaps ever before.

PREFACE:

With a potential to additionally contribute over one percent1 to India’s Gross Domestic Product (GDP), the proposed Goods and Services Tax is eagerly being looked forward to. Not only will this reform usher in perhaps a never-seen-before opportunity to revisit, rationalize and re-engineer transportation and logistics networks in India, but will also unleash a new era of developing logistics infrastructure and taking investments to the next level. Given that the inefficient shape of longer supply chains with warehouses in almost every state is fiscally preferred in the existing regime, it is now time to overhaul and compress the entire logistics setup.

Further, the international experiences of GST, which over 140 countries have introduced in some or the other variants, the delay in implementation in the Indian context seems to become all the more a cause of concern. The below framework summarizes the milestones in the evolution of GST, since the time it was proposed by the Union Government in 2006-07.

In the Year 2000

Vajpayee Government started discussion on GST by setting up an empowered committee. The committee was headed by Asim Dasgupta.

In the Union Budget 2006-07

The Union Budget for the first time announced that Levy of Taxes on Goods & Services will be at National Level rather than State level at present.

(Deadline to implement GST was April 01, 2010)

In the year 2007-08

The Empowered Committee of State Finance Ministers (ECSFM) agreed to prepare a roadmap to Introduce GST on National Level (since revenue of states are concerned, it was necessary to prepare committee consisting of  finance ministers of all states)

On November 10, 2009

ECSFM issued First Discussion Paper On Goods and Services Tax In India

Change in business strategies for logistics and warehousing service providers

Currently, the decision to base inventory and distribution models are based on levy of Central Sales Tax and varied state-Value Added Tax (VAT) rates and provisions. Tax optimization and administration is often considered over the operational and logistics efficiency. However, under the GST regime the tax will be levied on stock transfers and full credit will be available on inter-state transactions. This will free the decisions on warehousing and distribution from tax considerations and decisions will be based purely upon operational and logistics efficiency. This will lead to change in dimensions for logistics requirements of the clients forcing logistics service providers to rethink their business operations including creating new warehousing and logistics locations and expanding /closing existing warehouses at certain locations. In fact, networks and infrastructure associated with warehousing and logistics hubs are expected to be most impacted in the entire supply chain. Network and infrastructure related businesses would get drastically realigned, ensuring proximity to manufacturing locations or consumption markets and ultimately resulting into several hub-and-spoke models.

From the infrastructure perspective, the scenario would consist of lesser number of warehouses but with larger sizes, amounting to consolidation of widely spread warehouses almost one in each state. This would translate into expansion of some of the existing warehouses, development of new ones and indeed shutting down of several existing setups. In addition, locations of strategic significance for warehousing and logistics networks would eventually also turn out to be critical transportation hubs. Such impacts would command fulfillment of certain pre-requisites pivoted around infrastructure including land availability, road/rail/multimodal connectivity, power, etc. This would in turn require all stakeholders –Logistics Service Providers (LSPs), end users, industry associations and the government – to plan in advance so that foreseeable issues could be addressed in time and would help evolve a more agile, efficient, flexible and futuristic supply chain. LSPs and their end users both would need to re-engineer their supply chains, focusing on optimal locations for warehouses and logistics centres. Some of the target regions would include Chennai-Bangalore belt in the

South, Nagpur region in the Central part and Mumbai-Gujarat-Rajasthan-National Capital Region (NCR) corridor in the North-West, driven by the high potential for upcoming manufacturing activities and the planned Delhi-Mumbai Industrial Corridor (DMIC).

Impact on Cash Planning

Currently, abatements are available to transport service providers under the Service Tax law. These are not likely to continue in the GST regime. Also, the liability to pay tax may shift from the recipient of service to provider of transport service requiring it to pay full taxes on accrual basis. On account of this, a major impact will be seen on the cash flow for transport service providers who generally operate on marginal profit basis. Businesses need to quantify the cash impact and realign their working capital strategies to reduce / mitigate the cash flow impact.

Place of Supply, Tax Administration and Input Tax Credits

The most important change will be the transition from the present central tax regime (service tax) to the dual GST regime requiring payment of taxes simultaneously to the Centre and States and compliances across the country.

The Place of Supply rules will govern the State where the tax will be payable on any transaction of Transportation & Logistics. In the case of warehousing, the Place of Supply can be defined as the place where the warehouse is situated.

On the other hand, for transportation contracts, taxes may be levied by each State through which the goods move, perhaps based on the distance traversed in each State or alternatively in the State from where the journey of transport commences. The latter that is, the State from where the journey of transport commences, would be an ideal basis for taxation. Though being a simplistic model, the same would pose challenges to the transportation service providers such as registration and compliances requirements across all the locations from where the goods are loaded and dispatched. Also, another challenge envisaged is the ability of the transportation service providers to capture credits in respect of the expenses incurred enroute. Transportation service providers may incur expenses in different States during the journey from one location to another and it will be essential to avail input tax credits on such costs. In the event, appropriate rules are not framed under the GST law for claim of these credits, the transportation sector will have to be ready to absorb the impact on account of these tax costs.

Conclusions

As India prepares for a transition to the next level of logistics growth trajectory, regulatory policies need to evolve well ahead of the introduction. Further, on account of the delay in implementation of GST, it is critical to gauge the advantages the industry at large and the various stakeholders specifically are currently losing out. It is in this context that this paper analyzes the key fiscal as well as business implications of the proposed GST. The below table summarizes the key business implications that may accrue to the wider industry owing to increased organization in post-GST scenario.

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[Video] Service tax amendmend 2014 - Interest on delayed payment

This Video by +Adarsh Madrecha and +Ashish Badala  in short gives updates about what are the changes in Interest rate on delayed payment of service tax




Interest rate on delayed payment has been increased from 18% to 30%. But this increased interest rate is on slab basis. 

Interest has to be paid if the assessee does not make the payment of service tax by the due date. Due date for payment of service tax is 6th of the succeeding quarter (in case of individual or Partnership firm) or Month (in case of Others)

The Payment Schedule has been summarized below for your ready reference

Particulars	Frequency	Due Date
		Paid Physically	Paid Online
Individual/Partnership	Quarterly	5th of the Following Quarter	6th of the Following Quarter
Others	Monthly	5th of the Following Month	6th of the Following Month

Since budget 2014 has made online payment compulsory "5th" now becomes redundant.

Interest rate earlier was 18% pa simple interest. This was irrespective of the period of delay.

Now interest rate is divided into 3 slabs based on period of delay. 

• 18% - For first 6 months
• 24% - For more than 6 months to 1 year
• 30% - For more than 1 year.

This shall cause genuine hardship to tax payers if the service tax dues are contested at Adjudication or Tribunal or Court. As they will have to pay 30% interest now as the case in almost 100% of cases takes more than 1 year to have final verdict.

The penalty clause (which was same earlier) is levied similar like interest. Penalty is levied at 1% per month (that comes to 12% pa). Thus making total liability to increase at the rate of 42% (30% interest + 12% penalty)
Only Silver lining is that penalty is restricted to 25% of service tax liability.

The more shocking news is that, no one (Political party or Professional Institution or Trade body) has agitated on such a move by the government or not even shown a concern towards this.

Service tax amendmend 2014 - Interest on delayed payment

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