Bureaucrat Prakash Kumar was a month into his new role as CEO of the Goods and Services Tax Network (GSTN), a not-for-profit private company to provide IT systems and services to link around eight million tax-paying businesses in India with the central and state governments. The GST bill may have been just a gleam in finance minister Arun Jaitley’s eye, but Kumar had begun assembling a team of 60, two-thirds of whom would be from the technology private sector.
For long, the GST had been envisaged as a ‘single tax’ to replace the state valueadded tax (VAT), central excise, service tax and a few other indirect taxes. If GST saw the light of day, it would pose a couple of mindboggling technology challenges, which kept Kumar up at night.
First, more than 3 billion invoices would have to be uploaded every month across the base of businesses of all sizes. The IT system has to take in returns filed on the 10th, 15th and 20th of every month, apart from eight other categories of returns spread over a quarter.
A single website would never be resilient enough to handle this amount of web traffic. Currently, 3.8 million businesses have enrolled and migrated to GSTN portal from state-VAT departments. Prakash’s second finding was that taxpaying businesses are never homogenous. The compliance norms and requirements vary across industries.
For example, the pharmaceutical and FMCG industries have high volumes of reversetransactions too, unlike say automotive. So small retailers and pharmacies return products and medicines to manufacturers, after the goods are past expiry dates. The tax-filing processes had to make sense for such industry peculiarities, all kinds and sizes of businesses, yet be uniform and simple for the end user.
Kumar dialled the number of Pramod Varma, chief architect of Unique Identification Authority of India (UIDAI), who was developing a reputation in several government departments for tirelessly evangelising two buzz phrases — platform and open source. Over the next two years, they would host workshops for chartered accountants, techies and several companies to describe the new plumbing lines of the government system.
“It is very, very, very critical for government systems that are national in nature to be built with minimal functionality and designed as a platform,” Varma told ET. “If the government designs a platform on top of which others (developers and startups) can innovate, those innovations will serve as final solutions for end users (citizens).”
GSTN will be the first such kingdom of third-party portals and applications for a government-to-business service. When ready, in mid-2018, it will mark the second such ‘platform’ for applications in India’s history after Aadhaar. This is made possible because the GSTN has unveiled secure application programming interfaces (APIs) to 34 selected service providers (GST Suvidha Providers or GSPs) like Tally Solutions, Deloitte Touche Tohmatsu India and Mastek.
APIs empower GSPs to build digital services that can, in turn, include and harness apps or portals, built by tech startups like ClearTax and RazorPay. In effect, this network of service providers under the GSTN umbrella will customise platforms for taxpayers of diverse industries. While GSPs will charge their clients for tax filings, the GSTN portal is available for taxpayers to file returns for free. But, significantly, competition between the 34 GSPs will force them to build, monetise and market their products to taxpayers. Such competition gives the taxpaying businesses a healthy choice. “A GSP can also choose to make systems specific to a sector, like manufacturing, if that is the service provider’s strength,” says Kumar. He makes an admission that is rare to find in the government:
“No single entity could have designed 40 interfaces for taxfiling for different kinds of taxpayers.” In October 2015, the first GST Ecosystem and GSP paper spelt out that taxpayers can choose thirdparty applications, which will provide all user interfaces and convenience via desktop, mobile, other interfaces and will be able to interact with the GST system. “The third party applications will connect with GST system via secure GST System APIs.”
This system will free up GSTN to focus on ensuring authentication, security and compliance of tax filings, while the heterogeneous system design ensures reliability and better uptime than one monolithic portal design affords. It will be a departure from the likes of IRCTC, Passport Seva and income tax efiling portals that have been designed as a single destination for internet users. The way forward for India is API sandboxes, says Varma. “It was very evident to us (in UIDAI) that the government putting out an RFP and trying to build a portal, or entire monolithic applications, is not the way we should build systems.” UIDAI opened up APIs through a developer portal in 2011, shortly after the unique identification project had been commissioned.
Similarly, after the GST Bill – officially known as The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2014 – was passed in August 2016, GSTN started an open Google Group called the GST Suvidha Provider discussion group — for chartered accountants and developers, among others — to suggest and iterate the system based on queries, suggestions and observations of users. Soon after, it launched the developer portal (http://developer. gstsystem.co.in/apiportal/).
“Unless systems are built to allow layered innovation on top, it is impossible for a country with such diversity of users— language, education background, comfort with digital systems. You must allow extreme diversity and solutions to emerge on top of this platform,” says Varma, who is also CTO at EkStep, an NGO that seeks to build a primary education platform.
In the US, after Navstar global positioning system opened APIs, it enabled developer access to its navigation satellite system, paving way for startups like Where 2 Technologies to build programs in 2004 that would become Google Maps. In turn, Google Maps APIs have led to startups such as cab-aggregator Uber building business based on the mapping platform. The GSTN kingdom alone will allow technology companies and startups to provide local language versions, mobile apps, web apps or integrated apps for diverse customers like hospitals, schools, small shops and factories. “The only way you can do that is through APIs and allowing others to provide solutions for the diverse sets of taxpayers,” Varma says.
Similarly, if a separate project like highway toll collection gets digitised, it can be designed as a platform whose APIs enable developers to build congestion-pricing apps. For GSTN, taxpaying SMEs will file digital invoices (not scanned documents). Effectively, GSTN can take machine-readable electronic documents from them in digitally-signed formats. For SMEs, this system will help them get credit because NBFCs will grow all too familiar with the GSTN format. “A single portal to file taxes could not have provided such scope for the small- and medium-sized taxpayers. The credit innovations will be possible on GSTN’s platform,” Varma says.
Siddharth Pai, a technology consultant in Bengaluru, has worked with government customers globally and seen APIdriven ecosystems growing in the private sector. “It makes a lot of sense to open up as many APIs as possible because while GSTN keeps the network sacrosanct, it allows different ways of porting into the mechanism. The idea of allowing APIs and tech architecture is 15-20 years old,” he explains. “For the government, it enables speed of implementation as well.” In this respect, the advantage for GSTN is that GSPs like Tally or Deloitte Touche Tohmatsu already have a wide customer base which will have to onboard the platform for tax filings. “Proliferation of a Tally in India is huge as it has a bulk of small and medium-sized businesses, who have been using its software,” Pai notes.
GSPs’ products become a gateway into GST network for these customers. Of the 343 registrations by October 21, 2016, GSTN selected 34 GSPs by December 8. “We will have more GSPs, through invitation, for applications,” Kumar says, adding that the objective is to have a sufficient number of GSPs to cater to taxpayers’ requirements. Tech startups don’t qualify to be GSPs because of the current criteria (average turnover of at least Rs 10 crore in the past three financial years). But the GSTN architecture allows them to compete with each other to work with GSPs and develop smart apps and products. “We already have a large compliance product suite ready and, under client deployment, on the enterprise, CA and SME side,” says Archit Gupta, founder of efiling website ClearTax.
While it competes with a Tally, it can also feed off other GSPs to serve their customers. ClearTax, which claims to have MoUs with two GSPs, will double its current headcount of 150 before March 2017. Razorpay’s payment gateway solution has scaled up to gross more than 15,000 merchants in less than three years simply because it is an API-driven product. “GSTN allows us to build software products that can electronically upload invoices on the GSTN, or acknowledge invoices raised against a business,” says Harshil Mathur, cofounder of Razorpay.
Roll Up Those Sleeves
Once the network comes alive in 2018, GSTN will have to stay vigilant to ensure no cartels are formed and that GSPs provide access to any application provider without any discrimination or predatory pricing. This is mandated in the selection criteria. Expect technology to be made a villain when GST goes live. But the pains that migration to digital brings, will be in larger part because businesses and the government have to adapt to the new order.
From filing taxes separately to VAT departments and central excise authority, it will be centralised under one regime. A CA told ET the period will be fraught with litigation from both sides, depending on how the government interprets new laws and how businesses understand them. One thing is for sure — GST’s IT network will mark a departure from how government systems have looked at innovation.