GST- Recent Challenges and Problems

Introduction

The Goods and Services Tax (GST) is an indirect tax that was introduced in India on 1st July 2017. It replaced multiple taxes such as central excise duty, service tax, value-added tax, etc., with a single tax system. The main objective of GST Registration implication was to simplify the tax structure, reduce tax evasion, and bring uniformity in the tax rates across the country. However, the implementation of GST has not been smooth, and it has faced several challenges and problems in GST return filing as well. In this blog, we will discuss the major issues and their impact on businesses.

Challenges and Problems with GST:

 There are a lot of factors of challenges and problems with GST. Some of the major factors are listed below-:

1. Complex Tax Structure: One of the major challenges of GST is its complex tax structure. The GST system has four tax slabs – 5%, 12%, 18%, and 28%. Additionally, there is a special rate of 0.25% on rough precious and semi-precious stones and 3% on gold. This multi-tax system has made it difficult for businesses to understand and comply with tax laws. The complexity of the tax structure has led to confusion among taxpayers, resulting in increased compliance costs and a rise in litigation.

2. Technology 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 incorrect GST Return filing, leading to penalties and fines. The GST Network (GSTN), which manages the GST portal, has taken several measures to address the technical issues. However, the problem persists, and taxpayers continue to face difficulties in incorrect GST Return filing.

3. High Compliance Costs: GST compliance involves various activities such as GST Registration, GST return filing, maintaining records, and undergoing audits. These activities involve significant costs, which are borne by businesses. The 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) Issues: ITC is a significant feature of GST, which allows businesses to claim a credit for the tax paid on the inputs used in the production of goods or services. However, several issues have arisen with the ITC mechanism under GST. The major issue is the delay in receiving the ITC refund. The delay in the refund has resulted in a shortage of working capital for businesses, leading to cash flow issues.

5. GST Rates: GST rates have been a topic of discussion since the introduction of the tax system. The high tax rates on essential goods and services have faced criticism, as they have a direct impact on the common man. The government has made several changes to the tax rates, reducing the rates on some goods and services. However, the high tax rates on certain goods and services continue to be a concern for businesses and consumers.

6. E-way Bill System: The E-way Bill is a document that is required for the transportation of goods worth more than Rs. 50,000. The E-way Bill system under GST has faced several issues, including technical glitches and delays in generating the bills. The delay in generating the E-way Bill has resulted in the detention of goods and increased compliance costs for businesses.

Impact of GST Challenges on Businesses

The challenges and problems with GST have had a significant impact on businesses, especially SMEs.

1. Increased Compliance Costs: The high compliance costs under GST have made it difficult for SMEs to operate and compete with larger businesses. The compliance costs involve various activities such as GST Registration, GST Return filing, maintaining records, and undergoing audits. The high costs have resulted in a significant burden for SMEs, reducing their profitability and competitiveness.

    

2. Cash Flow Issues: The delay in receiving the ITC refund has resulted in a shortage of working capital for businesses, leading to cash flow issues. The delay in the refund 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. The increased litigation 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: The introduction of GST has required businesses to adapt to a new tax system, which has been challenging for many. The changes in tax rates, compliance procedures, and documentation requirements have made it difficult for businesses to understand and comply with the new system, resulting in increased compliance costs and reduced productivity.

    

5. Impact on Consumer Spending: The high tax rates on certain goods and services have had a direct impact on consumer spending. The increased cost of goods and services has reduced the disposable income of consumers, leading to a decline in consumer spending. The decline in consumer spending has a negative impact on businesses, especially those that rely on consumer spending.

Conclusion:

The introduction to GST in India was a significant step towards simplifying the tax structure and bringing uniformity in the tax rates across the country. However, the implementation of GST has not been smooth, and it has faced several challenges and problems while GST registration or incorrect GST return filing. The complex tax structure, technology glitches, high compliance costs, ITC issues, GST rates, and E-way Bill system issues have had a significant impact on businesses, especially SMEs. The challenges have resulted in increased compliance costs, cash flow issues, increased litigation, difficulty in adapting to the new system, and a negative impact on consumer spending. The government has taken several measures to address the challenges and problems with GST, but there is still a long way to go to make GST a seamless tax system in India.