Technology and Taxation: A Case Study of the GSTN
Updated: Aug 24, 2021
Across the world, technology has come to provide solutions for effective and seamless tax administration. In an increasingly globalized world, governments are working to create tax policies that will simultaneously increase revenue and appear lucrative to businesses and taxpayers. Consequently, many developed and some developing countries with high levels of technological advancements have invested in sophisticated digital tax structures where payment obligations are met without any interaction with tax officials.
In India, the introduction of the Goods and Services Taxes Network (GSTN) to support the Goods and Services Taxes (GST) is one such landmark initiative towards revamping the tax administration with the help of technology. Before the GSTN, the use of tax technology was fairly limited; Information Technology (IT) first made in-roads into tax administration in the country with the Income Tax Department. Soon, the central government and some states actively invested in tax technology, introducing e-filing and online payments. However, the introduction of the GSTN has integrated taxation with technology on an unprecedented level. GSTN has transformed indirect taxation by moving registration, filing of returns, payment of dues, and tax refunds onto a completely online and paperless system.
The Goods and Services Tax has been the centre of much controversy and discussion since its inception. However, the GSTN, which is central to the working of GST, has largely been uncontroversial. Although GST is criticised apart for its economic, political and social implications, the GSTN which has been equally important in transforming tax structures in the country has escaped attention and scrutiny. This paper, therefore, is an attempt to shed light over the creation and working of the GSTN.
Effective taxation has become synonymous with digital tax regimes and the use of technology to power tax administration. This essay attempts to uncover the impacts of technology on taxation by using the GSTN as a case study. The GSTN produces possibilities for greater involvement of the private sector in public tax administration. Technological solutions like the GSTN, I argue, not only reveals the limits of State capacity but also marks the beginning of a market-oriented approach to tax administration. Using government reports and a large pool of existing news reportage, the essay serves as a primer for the sociological study of interactions between tax administrations and technology.
GSTN – The Fulcrum of GST
On July 1st, 2017, the Government of India brought the Goods and Services Tax (GST) into force, ushering in a new era of indirect taxation in the country. Earlier, States and the Centre taxed at different stages of production at multiple rates leading to a ‘cascading effect’ and therefore, a greater tax burden on the final consumer. The GST, on the other hand, is a destination-based tax where each stage of the production chain is taxed by both the State and Centre at fixed rates. Unlike the previous system with many different taxes, GST only allows two: SGST and CGST, along with an additional IGST which is applied only on Inter-state purchases.
The GST council set up the GSTN as a private, non-profit entity in 2012 with the goal of developing a strong IT infrastructure and digital interface to complement the GST. The GSTN was initially a ‘Public-Private Partnership’ (PPP) with the States and Centre collectively holding 49% and private entities owning the rest. However, this changed in 2018 when all privately owned equity was transferred to the States and Centre equally.
The primary task of GSTN was to develop a common interface for registration, filing of returns and payments for all customers. GSTN was required to integrate itself with state and central tax administration systems through specialized Application Programming Interface (APIs) to bring all taxation services under a single platform. Since most states lacked a robust IT infrastructure, the GSTN team also developed back-end services for individual states and connecting them to the main GSTN system.
The GSTN integrated and unified different state and central tax administration bodies in the country and moved all indirect taxation related services to a single platform. From registration and filing of returns to payments and GST-services, the GSTN was expected to be a one-stop portal for customers. The GSTN, it was presumed, would not only eliminate paper transactions by moving to a fully digital system but also aid in comprehensive data collection, all the way down to individual Business to Business (B2B) transactions.
Technology and Taxation
The use of technology to improve tax administration is not new and goes as far back as computers themselves. Most tax administrations have moved from rudimentary and labour-intensive manual filing and processing on sheets of paper to computerized systems with some degree of automation. E-filing of returns has become the norm in most tax jurisdictions thanks to increased access to the internet and the proliferation of personal computers and hand-held devices.
Major tax policies across the world today have focused on improving the efficacy and ease of tax payments. Particularly in developing economies, where “tax administration is tax policy”, eliminating administrative roadblocks is seen to allow more choices on the policy front. The Tax Administration Series, published by the OECD, compares 58 economies to analyse trends and developments in tax administrations. The reports suggest that there is significant rise in e-filing rates across the world (as high as 85%) and the phasing-out of in-person systems (down to 15%).
Most IT-powered tax systems have two goals: to increase the tax net through comprehensive data collection and ease taxpayer obligations to encourage compliance. Taxation systems using IT have focused towards the creation of systems with enhanced capacity for information collection and processing as well as providing quick automated services complimented by an easy-to-use, accessible user interface.
Along with structural changes and the use of a digital interface, modern tax regimes are also rethinking tax policies and the meaning attached to taxation itself. Instead of tightening evasion laws and increasing administrative costs incurred by tax audits, tax administrators are formulating systems that will increase compliance and use data strategies that will allow intervention at earlier stages. Tax systems are increasingly preferring “self-assessment” modules for their effectiveness. By investing in features that increase compliance like e-filing, automated billing and electronic ledgers, tax administrations are looking at taxpayers as users rather than tax evaders.
While it is important to recognize the benefits of applied technology in modern taxation, it is equally useful to contend with the limitations of tax technology. Huge differences exist in the successful integration of technology within taxation, especially among developing countries. Scholars have pointed out that mere adoption (appropriation) of technology without suitable infrastructure and organizational setup is a recipe for disaster. Technology alone cannot fix a broken fiscal contract and the mindless application of it could even result in further alienation from the State.
Private Sector in Public Taxation
The GSTN is one of the largest and most complex IT systems built from scratch and would have been impossible without the active support of the private sector. From designing applications for smooth transition of taxpayers to the GST system, integrating the GSTN system with more than 100 state and central tax administrations, and building large data storage and processing facilities, the GSTN was responsible for a range of activities that required near-complete dependence on private entities.
The GSTN is one among the many National Information Utilities (NIUs); NIUs are private companies created to serve a public purpose. Other NIUs include the National Payments Corporation of India and Centre for Railway Information Systems. NIUs were envisioned to provide technological solutions and facilitate better design and implementation of government schemes and initiatives. Although these would be profit-making, their goal would not be profit-maximization.
The task of designing and building GSTN was handled by Infosys, one of India’s biggest IT consultancy firms. Wipro, another major IT consultancy firm, was tasked with creating TINXSYS, a feature of the GSTN that aids interstate businesses. Tech Mahindra, a large BPO firm, runs the call centres and information portals that help customers understand and use the GSTN. Since the GSTN requires high-end IT infrastructure and data storage facilities, important parts of the system, including mainframe and servers, are permanently housed in the offices of these companies. Further, they have set aside human resources and specialized task forces to keep the GSTN running. Thus, although the GSTN has been up and running for over two years, these agencies continue to play a crucial role in the running and maintenance of the system.
Apart from these major players, the GSTN has also partnered with several tax consultancy firms called GST-Suvidha Providers (GSPs) who curate and make specialized solutions for specific taxpayer and business cohorts. GSTN uses electronic cash ledgers for account keeping and mandates invoice-matching and e-filing for claiming Input Tax Credit (ITC). GSPs help businesses transition into the GSTN system by providing specialized ledger and return technologies suited to specific needs and thus help improve compliance. The APIs designed by the GSPs are further enhanced by App-based Service Providers (ASPs) to provide tailored solutions for customers.
GSTN – Some Implications
State dependence on the private sector in the realm of public taxation is not new. States have historically outsourced tax collection to private entities and actors in exchange for a share in the revenue. Privatization can range from outsourcing specific tasks to handing over the entire tax administration to private contractors. Advocates have argued that privatization increases efficiency and quality of tax administration as well as scope for innovation in collection mechanisms. However, privatization also has its own set of problems, particularly issues of accountability from private entities as well as the potential for losing public support for State taxation.
With tax systems capturing large amounts of data, data security and privacy has become a novel concern posed by IT-powered tax systems. The GSTN mandates e-filing and invoice matching and taxpayers are required to enter detailed invoices of purchase and sales in order to claim input tax credit (ITC). Powerful information processing systems will then be used by tax administrators to build comprehensive profiling of tax payers and build stringent systems for tax audits and to uncover cases of evasion. India lacks a comprehensive data protection law and the government has not built safeguards to ensure institutional accountability, thereby putting sensitive information like taxpayer data at risk. By depending on the private sector to run tax administration successfully, the government puts itself at risk of trying to control and monitor technology that it does not fully understand.
The exclusive control of the State over public taxation is also transformed by the private sector’s efforts to improve tax administration. GSTN is a case in point: the infrastructure and human resources required for the realization of the system made it necessary for the government to depend on the private sector. The role of GSPs who aid in the implementation of the GSTN also provide a good example of the extent of the involvement of the private sector in India’s tax administration. The search for technological fixes opens tax administration, a core government function, to private interests. The increasing role of the private in public tax systems is the result of State encouragement of market solutions to ‘reform’ taxation. Technological reforms in taxation therefore, has two implications: it removes the State as the sole custodian of public taxation and provides scope for the market to devise solutions for problems of governance (tax administration).
GSTN overturns fiscal responsibilities by shifting the focus from tax administration to the individual taxpayer. Tax technology, as discussed earlier, aims at high-compliance systems by introducing measures to ease taxpayer obligation. E-filing, electronic ledgers, and automated population of invoicing are in-built in the GSTN to facilitate compliance and simplify tax payments. The GSTN, like modern tax systems, relies on self-assessment to force individuals to take ownership of their tax obligations. The behavioural and psychological tactics behind it are used to create the impression of ‘voluntary compliance’. In order to clear their tax dues, businesses, big and small, are expected to invest in different types of accounting and tax software. Again, the proliferation of market solutions to facilitate public taxation is evident. As the State withdraws from its role as tax collector, the private sector steps in to make solutions that will complement tax payers in their efforts.
Tax and Technology
The introduction of the GSTN was a watershed moment in the history of tax administration in the country. By going completely paperless, GSTN promised to revolutionize tax payments and eliminate many logistical and administrative constraints in the earlier system. Since 2017, GST collections have been steadily rising but whether this success is due to the GSTN still remains to be seen.
Technology holds obvious benefits for tax administration, especially in developing countries. In a rapidly globalizing world, efficient and effective tax administration is prized by both nations and businesses alike. However, the increased dependence on technology also presents unique challenges to the position of the State.
The implications of introducing such a major tax reform have not been adequately explored. While there has been some writing on the impact of using technology to aid taxation, there has been little effort toward understanding shifts in fiscal responsibilities with the advent of Big Data and IT systems. I contend that technological systems like the GSTN produce transformations of the meaning behind public taxation and overturn conceptions of the traditional fiscal contract between the State and its subjects.
Aihwa Ong, in her book, Neoliberalism as Exception, remarks that in a neoliberal world, problems of governance are cast as non-political and non-ideological and in need of technical solutions which are best arrived at by the market. The increasing role of the private sector in public tax administration reflects how tax administration, a matter of governance, is slowly but steadily being turned over to the market.
Technology also produces transformations in subjects. Modern taxation systems aim to create ‘self-optimizing’ individuals who perform their duty of taxation as efficiently as possible using market resources. The role of technologies like the GSTN in producing new subject-identities and conceptions of one’s fiscal responsibilities in the modern State also remain to be explored further.
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 Tax Technology: The Next Wave In Business Technology. P. 4.  Ibid. Pp. 4-5.  GSTN Yearbook 2019, P. 15  Sundaram, "GSTN - The New Network." P. 116.  "Cabinet Clears Proposal To Make GSTN 100 Per Cent Govt-Owned Company." Economic Times.  Ibid. P20.  ibid.  M. Bird and M. Zolt, "Technology And Taxation In Developing Countries: From Hand To Mouse”. P.5.  Tax Technology: The Next Wave In Business Technology. P. 6.  "Use Of Digital Technologies Set To Increase Tax Compliance - OECD."  Tax Technology: The Next Wave In Business Technology. P. 6  Jenkins, Information Technology And Innovation In Tax Administration. Pp. 1-2.  M. Bird and M. Zolt, "Technology And Taxation In Developing Countries: From Hand To Mouse”." P.3.  Ibid. P. 3.  Sundaram, "GSTN - The New Network." Pp. 115-116  GSTN Yearbook 2019 P. 72. Also see: Section VI of GSTN Yearbook 2019 titled, “Our Partners” for detailed reports by all major partners.  Ibid. p. 25.  M. Bird and M. Zolt, "Technology And Taxation In Developing Countries: From Hand To Mouse”." P.40.  India, "Does India Have A Data Protection Law?"  Aihwa Ong. “Neoliberalism as Exception” P. 3.