Introduction
The Goods and Services Tax (GST) was implemented in India on July 1st, 2017, as a significant reform in the indirect tax system. It replaced multiple taxes, including value-added tax, central excise duty, and service tax, with a single tax structure. The primary objectives of GST were to reduce tax evasion, streamline the tax system, and bring uniformity to national tax rates. Despite these goals, the implementation of GST has faced numerous challenges and issues, particularly concerning GST returns, allocation of GST numbers and rates, the functioning of GST Suvidha Centers, and the overall implementation process. This article explores these challenges and their impact on businesses.
Challenges and Issues with GST
Numerous factors present challenges and issues with GST. Some of the key factors are mentioned below:
1. Complex Tax Structure
One major challenge of GST is its complex tax structure. Under the GST system, there are four tax slab rates: 5%, 12%, 18%, and 28%. Additionally, raw precious and semi-precious stones are subject to a special fee of 0.25%, while gold is taxed at 3%. This complexity makes it difficult for businesses to understand and comply with tax regulations, leading to increased compliance costs and a rise in litigation. Ensuring accurate tax payments and compliance is particularly challenging due to the different channels for State GST (SGST) and Central GST (CGST) payments.
2. Technical Glitches
The GST system requires taxpayers to file returns online through the GST portal. However, the portal has faced several technical issues, making it difficult for taxpayers to file returns on time. These glitches have also led to incorrect GST return filings, resulting in penalties and fines. Despite efforts by the GST Network (GSTN) to address these issues, technical problems persist, causing ongoing difficulties for taxpayers.
3. High Compliance Costs
GST compliance activities, including registration, return filing, record maintenance, and audits, involve substantial costs for businesses. These costs have increased significantly under GST, particularly for small and medium-sized enterprises (SMEs). The high compliance costs pose a challenge for SMEs, making it difficult for them to operate and compete with larger businesses.
4. Input Tax Credit (ITC)
ITC is a key feature of the GST system, allowing businesses to claim credit for the taxes paid on inputs used in the production of goods and services. However, issues with the ITC mechanism, such as delays in receiving refunds, have resulted in cash flow shortages for businesses, affecting their working capital and overall financial health.
5. GST Rates
The GST rates have been a topic of discussion since the tax system’s introduction. High tax rates on essential goods and services impact the common man. Although the government has made several changes to tax rates, reducing them on some goods and services, high rates continue to be a concern for both consumers and businesses.
6. E-way Bill System
The E-way Bill system, required for transporting goods worth more than Rs. 50,000, has encountered several hurdles, including technical glitches and delays in generating bills. These issues lead to higher compliance costs and detention of goods, posing significant challenges for businesses.
7. GST Suvidha Centers
GST Suvidha Centers are intended to facilitate GST registration, return filing, and query resolution. However, inadequate infrastructure, technical glitches, and limited accessibility have hindered their functioning, undermining their purpose of aiding taxpayers.
Impact of GST Challenges on Businesses
The challenges and issues with GST have significantly impacted businesses, especially SMEs.
1. Enhanced Compliance Costs
SMEs find it challenging to compete and operate with larger businesses due to high compliance costs under GST. The activities involved in compliance, such as registration, return filing, record maintenance, and audits, create a major burden for SMEs, reducing their profitability and competitiveness.
2. Cash Flow Issues
Delays in obtaining ITC refunds have resulted in cash flow shortages for businesses, making it difficult for them to manage their finances. This has led to reduced investments and growth opportunities, further hindering business operations.
3. Increased Litigation
The complex tax structure and technical glitches have led to confusion among taxpayers, resulting in increased litigation. This has increased legal costs and delayed dispute resolutions, adversely affecting business operations.
4. Difficulty in Adapting to the New System
Many firms have struggled to adapt to the new tax structure introduced by GST. Understanding and complying with new tax rates, compliance procedures, and documentation requirements have been challenging, resulting in increased compliance costs and reduced productivity.
5. Impact on Consumer Spending
High tax rates on certain goods and services have directly impacted consumer spending. The increased cost of goods and services has reduced consumers’ disposable income, leading to a decline in consumer spending, which negatively affects businesses, especially those reliant on consumer demand.
Conclusion
The introduction of GST was a crucial step towards streamlining the tax structure and bringing uniformity to tax rates across India. However, the implementation of GST has been fraught with challenges and issues, particularly in terms of registration, return filing, and the overall tax structure. The complex tax system, input credit issues, technical glitches, high compliance costs, GST rates, and the E-way Bill system have significantly impacted businesses, especially SMEs. These challenges have resulted in increased compliance costs, cash flow issues, litigation, and a decline in consumer spending. There is still much work to be done to make GST a seamless tax system in India.
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Published on: June 7, 2024