The rollout of the Goods & Services tax (GST) in India was a huge tax reform which simplified the nation’s complicated indirect Tax structure. Although the GST system intended to replace several taxes with one tax system, it experienced many setbacks in implementation. These problems in implementation of GST have hindered a smooth transition and raised concerns among business proprietors, customers and politicians.
Problems in Implementation of GST
The main problems in implementation of GST are:
Compliance Hurdles
High Compliance costs have been one of the main problems of implementation of GST. Under the GST regime an assessee needs to file up to 37 returns yearly (three monthly filings and one yearly return). This is in contrast with the 13 returns needed in the old tax system. For businesses which work in even more states, the burden is greater, because more returns must be filed. This considerable rise in compliance, logistics along with other expenses has strained businesses, especially SMEs.
Complexities in Transitioning
Migration to GST has been among the problems of implementation of GST, requiring more personnel and costs. Companies must register themselves and their suppliers on the GST network. Having to deal with non-registered vendors can increase compliance burden and impact claimability for input tax credit (ITC). Several companies have to rewrite and standardise long-term agreements with clients as part of the GST changeover.
Understanding the Tax Structure
Among other challenges in Implementation of GST has been the adoption of a dual GST structure with many tax bands of 5%, 18%, 12 % along with 28%. Even though GST was introduced to simplify the tax system, multiple tax rates have complimented the tax plan and also harmed the target of tax simplification. This has confused businesses and customers and made compliance harder.
Training and Capacity Building
One of the main problem in implementation of GST continues to be the intensive training of tax administration personnel. Since GST was a new idea in India, training was necessary for the whole tax administration workforce from the state to the central government. This training required to include the concept, legislation and procedures for this new tax regime. This task was of such magnitude that it disrupted some other organisations ‘activities and most are still dealing with the GST problems.
Sectoral Impacts of GST
A big portion of the Indian economy is in the service Sector and is adversely impacted by GST. Majority of services are taxed at 18%, up from prior prices. This has also increased consumer costs because businesses in sectors with an impressive consumer base like telecommunications have raised their rates to compensate for the increased tax burden.
GST has issues in implementation with manufacturing states not receiving their fair share of taxes under the consumption based destination tax system. Although the compensation Act was passed to remedy the issue, it has made Compensation calculations more complicated.
The regressive character of GST has likewise been questioned. GST is a regressive tax since it hits low income earners more strongly as it’s dependent on spending as opposed to income. As a significant part of India’s population is very poor and lower middle class, these groups are probably the most negatively impacted by GST which takes up more of their earnings.
Technical Challenges of GST
Strong IT Infrastructure GST implementation requires a efficient IT network able to support GST operations through live integration of state governments, commerce, market along with other stakeholders. Because of this reason the Goods & Services Tax Network (GSTN) has been created. Still, the backbone of the entire GST taxation system – the GSTN software – has faced challenges with the volume of transactions as all registered individuals should file returns monthly.
GST has made taxation more dependent on the IT interface. Although much larger organisations might be much better prepared to handle this particular shift, lots of SMEs lack technical resources and know-how to make this change.
Anti-Profiteering Measures
The anti profiteering clauses in the GST law have produced practical challenges in implementation of GST. Businesses have to pass on such tax cuts to their clients and the Anti Profiteering Authority makes sure lower tax rates brought on by the GST implementation translate to lower prices for customers. However this blocks the free market from establishing costs on demand and supply and it could be hard to determine whether decreased tax rates have resulted in lower commodity prices.
Burden on SMEs
In addition, GST has made the taxation process even more dependent on the IT interface and more dependent on online systems. Although much larger organisations might be much better prepared to handle this particular shift, lots of SMEs lack technical resources and know-how to make this change. The lower duty limits have also slapped many SMEs and startups under the GST ambit.
Addressing the Problems of Implementation of GST
Regardless of these challenges of GST implementation, the government and also the judiciary have taken measures to rectify these legitimate issues and facilitate GST implementation. The judiciary has interpreted many provisions of the GST rules, mediated conflicts between the states and the center and provided guidance on GST implementation.
The judiciary has also dealt with challenges concerning the constitutional validity of GST provisions such as powers sharing between the states and the center. The courts’ interventions clarified legal issues and guided businesses and policymakers on how to implement GST in India.
Final Thoughts
Stakeholders should now continue working in teams to resolve the problems in implementation of GST. The government must outline guidelines and help companies (particularly SMEs) to help them go through the tax system. The IT infrastructure must also be strengthened to allow the integration and processing of transactions.
Further, the regressive nature of GST and its effect on lower income earners must be dealt with. The government might consider lowering the disproportionate burden on the very poor and lower middle class via targeted exemptions or subsidies for basic services and goods.
Despite so many challenges, GST represents a major change which can simplify the tax structure and boost economic growth in India. By dealing with the problems in implementation of GST through collective efforts, refinements and clear communication, India can move to a far more efficient and fair tax process for companies, consumers and the society.
FAQs
1. What are common challenges that businesses face when implementing GST?
- High compliance costs due to increased number of returns to be filed (up to 37 per year)
- Confusion and complexity with multiple tax rates (5%, 18%, 12 % along with 28%).
- Migration challenges with vendors having to be GST-registered and contracts rewritten.
- Reliance on IT infrastructure and online systems for GST compliance.
2. How does GST implementation impact small and medium enterprises (SMEs) in India?
- High compliance costs and technical experience to adapt to the online GST system are burdensome for SMEs.
- The reduction in duty limits got many SMEs and startups into the GST system.
- SMEs often lack resources and technical skills to cope with the new taxation system.
3. What are the key technical issues encountered during the rollout of GST?
- The Goods & Services Tax Network (GSTN) software program , the backbone of The GST system, faced challenges in handling massive volumes of transactions.
- The need for an IT network able to link state governments, companies and other parties in real time.
- Higher dependence on IT interface & online systems for GST compliance.
4. What are measures for addressing GST compliance problems?
- Clearly defining guidelines and support for businesses (especially SMEs) to help them confront the new tax regime.
- Strengthening the IT infrastructure to help unify and effective processing of transactions.
- Continuous refinements and cooperation between stakeholders to address compliance challenges.
5. Which are the sectors dealing with challenges in GST adaptation?
- The service sector, where most services are taxed at 18% (higher than before), raising costs for customers.
- Manufacturing states that don’t get their fair share of taxes under the consumption-based destination tax program.
- Sectors with significant consumer base like telecoms which have raised prices to absorb greater tax burden under GST.
