The Cabinet on Wednesday approved a proposal to convert the Goods and Services Tax Network (GSTN) into a 100-per cent government-owned company. GSTN provides IT backbone to the indirect tax regime.

The decision will enable acquisition of entire 51 per cent equity held by non-government institutions in GSTN, equally by the Centre and the States. Once the process is completed, the Centre will hold 50 per cent, while the remaining 50 per cent will be held by States on a pro-rata basis.

The structure of GSTN board will also change by the induction of three directors each from the Centre and the States and three other independent directors to be nominated by the Board of Directors and one Chairman and a CEO. This means that the strength of the Board will be 11. GSTN was created as a private limited, not-for-profit company under Section 25 of the Companies Act, 1956, by the government on March 28, 2013. It was meant to provide shared IT infrastructure and services to the Centre and the State governments, taxpayers and other stakeholders for the implementation of the GST. At present, the Centre and State Governments hold 24.5 per cent stake each in GSTN; non-governmental institutions hold the other 51 per cent. These institutions include HDFC, HDFC Bank, ICICI Bank, NSE Strategic Investment Co and LIC Housing Finance Ltd. The GST Council, the apex policy making body for new indirect tax system, approved a proposal in May to change the structure of GSTN.

The GSTN Board will be allowed to retain the existing staff on the same terms for five years, an official statement said. It will also have the flexibility to hire people on contract on terms similar to hiring of regular employees. The majority of the GST processes including registration, filing of returns, payment of taxes and processing of refunds is IT-driven. GSTN handles the invoice data of lakhs of business entities, including data on exports and imports.

Interestingly, even in the present structure, the government is not the majority equity holder in GSTN. The government has always highlighted the fact but is not able to stop the criticism from the Opposition and some constituents of the ruling NDA that GSTN stores key business data of businesses, so ownership by non-governmental institutions is not a good idea.

Keeping this in mind, the government has proposed to change the equity structure which was first approved by GST Council and then by the Cabinet.

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