Introduction
The Goods and Services Tax (GST) was implemented in India. On July 1st, 2017, as an indirect tax. A single tax system took on the role of several different taxes, including value-added tax, central excise duty, and service tax. Reducing tax evasion, streamlining the tax structure, and bringing national tax rates into uniformity were the main goals of the GST registration implications. However, there have been several challenges and issues with GST returns. The allocation of GST numbers and rates, the functioning of GST Suvidha Centers, and the implementation of GST have been tough tasks. In this article, we'll discuss the main problems and how they impact 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%. Further, raw precious and semi-precious stones are subject to a special fee of 0.25%, while gold is subject to a rate of 3%. It is now more challenging for firms to comprehend and abide by tax regulations due to this complex tax system. The complexity of the tax structure led to confusion among taxpayers, resulting in increased compliance costs and a rise in litigation. Businesses frequently face challenges in ensuring accurate tax payments and complaints due to the different channels for SGST and 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 glitches, making it difficult for taxpayers to file returns on time. The technical issues have also resulted in the wrong GST return filing, leading to penalties and fines. The GST Network (GSTN), which manages the GST portal, has undertaken several measures to address the technical issues. However, the problem persists, and taxpayers continue to face hurdles in incorrect GST return filing.
3. High Compliance Costs
GST registration, GST return filing, maintaining records, and undergoing audits come under GST compliance. These activities involve substantial costs, which are borne by businesses. Compliance costs have increased significantly under GST, especially for small and medium-sized enterprises (SMEs). The high compliance costs have made it difficult for SMEs to operate and compete with larger businesses.
4. Input Tax Credit
ITC is the key feature of the GST system, which allows firms to claim a credit for the taxes they have paid on inputs used in the manufacturing of goods and services. However, several issues have arisen with the ITC mechanism under GST. The major issue is the delay in receiving ITC refunds. Delays in ITC refunds resulted in a shortage of working capital for businesses, leading to cash flows.
5. GST Rates
GST rates have become a topic of discussion since the introduction of the tax system. The high tax rates on essential goods and services have an impact on the common man. Several changes are made to tax rates by the government, reducing the rates on some goods and services. However, high tax rates on goods and services continue to be a concern for consumers and businesses.
6. E-way Bill System
The E-way Bill system is the essential document required for the transportation of goods worth more than Rs. 50,000. The E-way Bill System has encountered several hurdles, including technical glitches and delays in generating the bills. Businesses face higher compliance costs and detention of goods as a result of delays in the E-way Bill.
7. GST Suvidha Centers
The GST Suvidha Center, as a center of facilitation, offers support in GST registration, GST return filing, and query resolution. Due to inadequate infrastructure, technical glitches, and limited accessibility, these centers are improperly functioning, contradicting the stated aim of the taxpayers.
Impact of GST challenges on business
The challenges and issues with GST have significantly impacted businesses, especially SMEs.
1. Enhanced Compliance Costs
SME finds it challenging to compete and operate with larger businesses due to high compliance costs under GST.GST registration, GST return filing, maintaining records, and undergoing audits are the activities involved in the complaint costs. The high costs have resulted in a major burden for SMEs, reducing their profitability and competitiveness.
2. Cashflow Issues
The delay in obtaining the ITC refund has resulted in a shortage of working capital for businesses, leading to cash flow issues. The delay in refunds has made it difficult for businesses to manage their finances, resulting in reduced investments and growth opportunities.
3. Increased Litigation
The complex tax structure and technical glitches have led to confusion among taxpayers, resulting in increased litigation. This has resulted in higher legal costs and delayed resolution of disputes, affecting the business operations of the companies involved.
4. Difficulty in Adapting to the New System
Many firms have difficulty adapting to the new tax structure that the introduction of GST has brought. Businesses have found it challenging to understand and comply with the new changes in tax rates, compliance procedures, and documentation requirements, resulting in increased compliance costs and reduced productivity.
5. Impact on Consumer Spending
The high tax rates on certain goods and services have a direct impact on consumer spending. The increased cost of goods and services has reduced the income of consumers, which has led to a decline in consumer spending. The decline in consumer spending hurts businesses, especially those that depend on consumer spending.
Conclusion
The introduction of GST was a vital step towards streamlining the tax structure and bringing uniformity to the tax rate across India. However, the implementation of GST was not a smooth path, and it faced challenges and issues with GST registration and inaccurate GST return filing. The complex structure, input credit system, technical glitches, high compliance costs, GST rates, and e-way bill system had a great impact on business SMEs. Challenges have resulted in increased compliance costs, cash flow issues, increased litigation, and a negative impact on consumer spending. Still, more work has to be done to make GST a seamless task system in India.
The author is an operations director and co-founder of Ebizfiling India Private Limited and has 13+ years of rich and profound experience with various corporate sectors. In her career so far, she has led teams of 50+ professionals. In due process, she gained vast knowledge of all the areas of Indian statutory compliance, including laws and taxation.
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