Rebooting India: Realizing a Billion Aspirations (18 page)

At the heart of the GSTN lies the technology platform that powers the implementation, operation and oversight of the GST. Coming up with a design for this platform was the mission of a group with another of those catchy government-issued names—the Empowered Group on IT Infrastructure on GST. Under Nandan’s chairmanship, this group presented a report to the government in September 2010 which outlined the proposed system’s design philosophy, key features and operational goals.
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It would need a professional, highly experienced team to build a platform capable of processing hundreds of millions of transactions for millions of taxpayers.

One of the main aims of the GSTN is to make life simpler for both the taxpayer and the tax administrative authorities. As far as the taxpayer is concerned, the filing of tax returns and the payment of taxes should be a simple, uniform process, irrespective of location and the size of the taxpayer’s business. Hence, the GSTN’s technology platform should make it easy for the taxpayer to comply with the law without necessitating extra effort on their part. By implementing a uniform set of policies to be administered across the centre and individual states, the GSTN will also significantly reduce the costs and administrative machinery required to implement and enforce tax laws. The transparency conferred by the use of technology will help to plug leaks, eliminate tax fraud and enable easy auditing. Data from this system can be mined and analysed to improve tax collection. Ultimately, however, the GSTN architecture must recognize and respect the constitutional autonomy granted to the states, and should not blur the constitutionally drawn boundaries between state and centre.

Building the GSTN requires us to address the needs and concerns of all those who will be stakeholders in the system. Small taxpayers
cannot be expected to immediately adopt an entirely electronic tax payment and processing system, and there should be extensive education and training to make the process as smooth as possible. Corporate taxpayers tend to operate across the country, and have to grapple with different tax regimes in different states. They usually have sophisticated inhouse software systems to handle the complexity of tax processing and payment. These systems must be made compatible with the GSTN by issuing a uniform set of standards to corporate tax software providers. These standards should also be implemented across all states, making it easier for state authorities to collect tax and implement policies. Tax collection, after all, is about actually collecting money, and hence the Reserve Bank of India and other banks should be able to freely work with the GSTN to get taxpayer information and process payments.

There are four key processes that the GSTN needs to implement, connecting the stakeholders we described above. The first is the registration of taxpayers. Since the PAN card is already a common ID used for paying income tax, it can be reused for the GST, without going to the pointless trouble and expense of creating a new, GST-specific ID format. Using the PAN number has the added benefit of reconciling direct and indirect taxes paid by every entity and creating a comprehensive record of every taxpayer’s payment history, making it easier to audit payments and catch any instances of fraud.

The second important process in tax collection is the processing of challans. A challan is a payment instrument used to pay taxes to the government. Both the monetary payment and the associated challan are deposited at collecting banks, which then forward them to the respective tax administrations.

Finally, all taxpayers are required to file their returns so that the centre and states can both assess whether taxpayers have computed, collected and deposited their taxes correctly. These three processes—taxpayer registration, challan submission, and the filing of tax returns—can be completely automated and integrated with various tax-preparation software packages. Beyond these, there are various other processes such as processing of refunds, taxpayer audits and appeals, which also
need automation and integration with the revenue collection systems of the centre and states.

The fourth key process, and perhaps one of the most important and interesting ones, is the administration of the interstate GST settlement. Keeping in line with the destination-based taxation design of GST, in the case of interstate commerce, the GSTN computes how much tax each state owes each other, and settles the accounts of states. The entire process of GST collection and sharing of revenues is explained in the accompanying diagram.

While the GSTN can build this complex system that connects with all the stakeholders, defines all the interfaces, and provides a multitude of services to each stakeholder, the business rules—tax rates, negative lists, special categories and other such issues—can be decided independently by the government and simply uploaded into the system, and even changed as necessary. Policy-making and policy administration are thus cleanly separated, making the system far easier to operate.

Just as in the case of the state-level VAT, all buyers and sellers in the GSTN system will also be linked, raising the barriers to fraud and providing a significant revenue boost for the government. The GSTN can easily use data mining techniques to detect tax fraud—for example, the wrongful usage of tax rules or the creation of non-existent dealers to claim illegal benefits—and plug the leaks that exist in the current system.

Through the use of technology, the GSTN will tip the balance in favour of compliance rather than tax evasion, lowering the barriers for entry into the tax payment system while making it much harder to cheat on payments. This is the exact opposite of the approaches taken so far, where the emphasis is on vetting users before allowing them to pay tax, while fraud detection systems remain largely inefficient and vulnerable to cheating. Honest taxpayers will find the new system more transparent, cheaper, and far easier to use, whereas evaders will be caught more readily and suffer punishment. As we explain in the following diagram, the GSTN works as a self-policing system in which attempts at evasion are automatically flagged, making compliance easy
and our tax payment systems transparent. Implementing the GSTN can lead to an estimated 20 per cent increase in tax collections, which could work out to the tune of Rs 300 billion in additional revenue for the government, enough to pay the annual bill of the nation’s Rural Employment Guarantee Scheme.

Creating a unified Goods and Services Tax is a critical step in building the kind of open market that will allow the Indian economy to reach its full potential, a step that Finance Minister Arun Jaitley has referred to as the ‘biggest tax reform since 1947’.
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We h ave an unprecedented chance to demolish several legacy taxation systems and streamline them into a single, uniform tax network. By simplifying taxes, we can spur a massive redistribution in India’s manufacturing practices, where goods and services are produced where economical and consumed where convenient. All the wasted energy that goes into ensuring compliance with tax laws can be redirected where it is really required; technology can make compliance easy while simultaneously raising the barriers for evasion. Ultimately, the GST goes far beyond streamlining India’s taxation network. It is in fact a project in nation-building, with the potential to radically transform the Indian market, the Indian economy, and 1.2 billion lives.

ASK ANY INDIAN if he or she would like a better road network throughout the country, and the answer will be an instant ‘yes’, whether it’s a farmer wanting a better way to transport his goods to the nearest market or a city dweller wanting to reach the office without negotiating spine-jarring potholes along the way. But ask the same person if they’re willing to pay toll as a means to building this better road network, and the answer is suddenly a lot less emphatic.

In the absence of an open and honest debate about the need for toll collection, the entire issue has become heavily politicized. Tolls increase the cost of travelling by road, and using a tolled road for their daily commute pinches the pockets of the poor and the lower middle class; the resulting discontent is an easy target for those looking to gain political mileage and make the headlines. But reading between the lines, the fact that people have to pay toll is not the only source of anger; rather, it is the lack of transparency in the way toll systems are created and operated. Unfortunately, the focus of this rage often becomes the hapless tollbooth operator.

Terrified operators in Maharashtra fled as protesters descended upon a tollbooth outside Mumbai, breaking windows and smashing
computers.
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In Gurgaon, a driver was asked for his licence as proof that he lived in a nearby village, residents of which were exempt from paying toll; this request so enraged the driver that he shot and killed the tollbooth attendant.
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Members of Parliament are also exempt from paying tolls; a member of Parliament from Gujarat who stopped at a toll plaza was asked to furnish his original parliamentary ID instead of a photocopy to avail of the exemption. He pulled out a rifle instead.
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Tolls are the price we must pay for using a modern, well-maintained road network that spans the nation. The need of the hour is to develop a toll collection system that is both effective and fair, creating revenue that can spur infrastructure development.

Near Bhopal, the capital of Madhya Pradesh, lie two villages fifteen kilometres apart. One village is accessible by a proper road, part of the national road network; the other is not. Has this made any difference to the fortunes of their residents? In the first village, land is three times more expensive. People make 50 per cent more money, commute freely and tend small-market gardens whose produce they sell.
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This tale of two villages highlights the economic impact that better road connectivity can have, an impact that we have been historically slow to recognize. Roads are absolutely critical for the movement of people and goods across our country, accounting for about 85 per cent of all passenger traffic and 60 per cent of all freight traffic.
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Despite this vital role, India’s roads remained neglected for decades, with poor connectivity and even worse maintenance making road transport inefficient and painful. It was not until the 1990s that the government started paying serious attention to improving India’s roads. Prime Minister Atal Bihari Vajpayee oversaw the establishment of the National Highway Development Project (NHDP), created to effect a massive overhaul of our national roadways; the initiatives implemented by the NHDP have been extended and expanded by all subsequent governments at the centre, a testament to the crucial role that a good road network can play in the nation’s development.

The flagship of the NHDP was the Golden Quadrilateral Project, a national highway system designed to connect the four major metropolises of India—Delhi, Kolkata, Chennai and Mumbai. Once it was complete, the Golden Quadrilateral not only improved road transport across the nation, saving goods manufacturers time and money, but also ended up boosting industrial development and productivity in areas surrounding the highways. Upgrading India’s roads could result in a savings of some Rs 750 billion in fuel costs. For every million rupees the government spends on roads, 124 people rise above the poverty line; every rupee spent on building and maintaining rural roads yields more than Rs 5 in additional agricultural output.
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Factories can now operate in formerly inaccessible and underdeveloped areas. One such example is Fabindia, famous for bringing Indian textiles and handicrafts to the global marketplace; through community-owned companies, they employ over 55,000 rural producers, and nearly 15,000 artisans are now shareholders.
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While the benefits of a well-built and well-maintained network of highways to boost connectivity across the country are extensive and well known, the unfortunate truth is that the government cannot single-handedly foot the bill for such large infrastructure projects. The only way we can build all the roads we need at speed and scale is through a partnership with the private sector, and with user charges. The revenues that the government collects in the form of toll can then be ploughed back into maintenance, building more roads, and helping scale up infrastructure development.

Quite apart from threats to life and limb, the current manual toll collection system suffers from other defects as well. Depending upon the agency collecting the toll, the receipt may or may not be computer-generated. Preparing receipts by hand is a slow and cumbersome process. Customers largely pay in cash, which forces them to carry enough money for the transaction, and requires toll attendants to count the money manually and hand over the appropriate amount of change. It is not uncommon to see an attendant from one booth jog over to another if his supply of small change has run low. The entire process is inefficient, slow, prone to leakage, and cannot scale up to
handle increasing volumes of traffic. The National Highway Authority of India (NHAI) loses an annual Rs 3 billion—15 per cent of the total toll revenue collected—in leakages.
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Consider the case of the Delhi–Gurgaon expressway, the busiest in India, used by over 200,000 vehicles a day and originally designed to transform a single-lane road hopelessly clogged with traffic into a world-class commute. Built under a public–private partnership, it was the site of South Asia’s largest toll plaza, designed to allow the smooth flow of traffic. Instead, rush hour on the highway was memorably described as a ‘gladiatorial contest’, with commuters having to wait up to forty-five minutes to pay, thanks to a fatal combination of too much traffic, too few booths, and inefficient attendants. A shining idea clashed horribly with grim reality; the toll plaza is now closed, slated for demolition.
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Having to wait in long queues to pay toll worsens traffic congestion instead of lessening it, wastes fuel, reduces utilization, and works as a powerful disincentive for using tolled highways. Recognizing that a largely manual toll collection system was incompatible with the goal of building a modern, high-speed road network, Ravi Palekar, currently the CEO of Indian Highways Management Company Limited (IHMCL)—the organization responsible for electronic toll—was asked to design and develop an electronic toll collection system that could be implemented across the country. He recalls, ‘One major challenge I faced was to decide which technology would work best. A different kind of challenge came from the people who were benefiting from the pilferage in the system. Any move towards modernization that brings in transparency and accountability always has its opponents, and I struggled quite a bit in the initial days.’

He eventually turned to Kamal Nath, then the minister for road transport and highways. ‘I told him I was facing a big challenge in deciding which technology to use. He promptly called Nandan and asked him to contribute in this effort,’ Palekar says. The government officially appointed Nandan in 2010 to chair a committee tasked with investigating existing technologies for electronic toll collection and recommending the most suitable option in the Indian context. This
group included two outside experts in the field as well as officials from the relevant government bodies. Consultations were held with all the potential stakeholders in an electronic toll network: the NHAI, concessionaires, user groups and technology vendors. This is how government committees are—usually large, with all stakeholders and views represented. Successful committees bring about consensus across all stakeholders, balance all the incentives, and come up with recommendations that become the bedrock of implementation.

After evaluating multiple systems on such parameters as efficacy, cost, interoperability and vendor availability, the proposed design was based on radio frequency identification (RFID) technology, which allows for vehicle identification to become an automated process.
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It is heartening to note that, as we discuss later, all the key recommendations made in terms of the technology for tolls and payment collection, as well as the organizational structure best suited for building a nationwide electronic toll platform have been adopted by the current administration and are being rolled out.

Whether it’s people or cars, we need a way to identify them reliably. People now have Aadhaar numbers to do the job; the equivalent for a vehicle is an electronic tag. How do such systems work in practice? As the accompanying diagram explains, vehicles equipped with an identity tag only need to slow down as they pass through the toll plaza. A scanner installed at the plaza reads the vehicle’s details electronically, and automatically bills the toll amount to a linked prepaid account. There are several technologies that can be employed for this process—active and passive microwave, infrared, and active and passive radio-frequency identification (RFID). Microwave-based systems are common in Europe and Japan, whereas RFID-based systems are popular in the US.

Based on the technical merits and costs of different technologies, the committee chose passive RFID as the best solution for India. In this system, the vehicle owner needs to purchase a radio tag and stick it prominently on the windscreen. The tag has an antenna and
a circuit printed on the inside; they are activated by the overhead reader, or transceiver, installed in the toll plaza. Such systems are now commonplace and the cost is minimal. In the passive RFID set-up, the main source of energy is the overhead reader, not the sticker. In practical terms, this means that the vehicle owner does not have to bother with changing batteries or ensuring that the tag on his car is charged. Once the sticker is in place on the vehicle, it requires no maintenance on his part. The reader in the toll plaza can easily read the tag as the vehicle passes underneath, reducing the transaction time to a fraction of what it is currently.

For any system that is likely to be deployed nationwide, the technology component must be robust, tried and tested in the real world, and affordable. Ideally, it should be available from multiple vendors so that the government is not forced into a lock-in with a single vendor. For the RFID-enabled toll collection system, there need to be multiple vendors of tags and transceivers, all developed to a common specification laid down by the government. Once the specifications are met, any tag should be capable of being read by any transceiver and vice versa, irrespective of the vendor. The passive RFID technology satisfies all these criteria, and hence was recommended by the committee as the technology platform on which to build an electronic toll collection system.

Once you have set in place the method to identify vehicles, you need to design a standardized process for collecting toll. What are the steps involved? First, the tag on a vehicle needs to be linked to a prepaid account, much in the way a prepaid SIM card works. Every time the vehicle passes through a toll plaza, funds will be debited from the account, and the tag must then be topped up in the same way that we top up our prepaid mobile connections.

Ravi Palekar tells us, ‘When the user registers with the bank, they have to pay a one-time cost for the tag. Right now, that cost is around Rs 250 plus tax, but that number will decrease significantly as the user
base grows. A minimum balance has to always be maintained on the card. This threshold has been set at the amount of toll applicable to that class of vehicles for 120 kilometres, roughly the cost of passing through two toll plazas. The user will keep getting SMS alerts to top up their account when the balance is low, to avoid being blacklisted.’

As toll plazas become more efficient, transport operators can track fleet movement, and toll road users can drive non-stop without bothering about toll rates or carrying exact change. The same tag can be read at toll plazas on highways all across the country so that state boundaries no longer act as deterrents to the smooth flow of traffic. Coupled with the tax reforms we discussed in the previous chapter, we envision a situation in which the same state barriers that today impede the flow of goods and passengers will become invisible for all practical purposes. We will have a single uninterrupted pan-India road network, increasing connectivity and bringing even the most far-flung regions of the country onto the national grid. Trucks will no longer need to prominently display the names of the states in which they have a permit to operate, which can be encoded on the tags instead. There’ll be plenty of room for the colourful artwork and the catchy slogans—like the classic ‘Horn OK Please’ and the admonitory ‘
Buri nazar wale, tera moonh kala
’ (O you with the evil eye, may your face turn black)—that make our trucking fleet such a memorable part of India’s roads.