CHALLENGES AND ISSUES IN GST

• Undoubtedly GST may be an ideal tax

structure in any country as it not only
simplifies the tax structure but also reduces
the cascading burden of enormous taxes. It is
a prospective law if implemented properly but
even some sophisticated European countries
have had technological problems in its
implementation. The critical faults in the
present system in India are-
• The Goods and Service Tax (GST, as it is called)
was introduced to remove the multiple taxes
that the consumer had to pay for every
product (namely, VAT, Sales Tax….the list goes
on). The government has boiled down to
single tax per product category. So, for
example now we know that we need to pay
18% tax on biscuits wherever you go in the
country. So that is the good part, now there
are few flaws which I observed:
• Multiple Tax Slabs:
• There are multiple tax slabs under GST which
are 0%, 5%, 12%, 18% and 28%.
• Now when we compare with other countries,
Canada has a flat GST of 5% and HST
(Harmonised Sales Tax) of 15%, UK has a flat
tax rate of 20% and so on.
• These multiple tax slabs may give the
fraudulent to sneak peak their extra income.
• One more example, restaurant based services
have been given multiple tax slabs based on
different variables like AC, restaurant turnover
amount, luxury category etc. Restaurants with
turnovers less than 50 lakhs will charge 5% GST
while restaurants whose annual turnover is more
than 50 lakhs (things become tricky) will charge
you 12% if that is a Non-AC restaurant and 18% if
that is an AC restaurant. Five star hotels will
charge 28% GST. So, now that tax rate will change
based on where you are sitting and having a
meal.
• No parliamentary approval needed for altering tax rates:
• Now that is a very bad thing.
• As per the constitution, any changes in tax rates need to be pre
approved by the parliament.
• But The Central GST Bill, 2017 allows the central government to
notify CGST rates, subject to a cap. And that cap is fixed at 20%. So,
the central government can increase CGST upto 20% more than
what it is charging with out need for approval of parliament.
• That means the current rates of 18% can go to 38% and the rates of
28% can go to 48% without need for approval of the parliament. So
till the CGST rates don't go beyond 20% of excess, not even the
opposition in parliament can do anything.
• Lack of clarity on Anti-Profiteering Rules:
• GST’s anti profiteering clause requires
companies to pass on the benefit of reduced
taxes to consumers.
• But no clarity has been given on how the price
reduction will be worked on. It does not
specify how the loss making units pass on the
benefits to the consumers.
• Nevertheless, the cost of goods depends on
various factors which include, Cost of inputs,
cost of technology used for production, tax
rates, demand and supply of product,
consumer preferences and seasonal
variations, competition in market, type of
distribution channel used…. Since cost
associated with the above mentioned (few)
factors keep fluctuation, it will be difficult to
determine if a reduction in tax rates is
reflected in the price of good or service
• Input Tax Credit: GST allows companies and
distributors to claim refund (not rebate) for the
tax they have already paid. That means every unit
of supply chain will just pay the tax for the
amount which they are adding before selling it to
final customer. This model works perfectly great
in organised economies where every penny spent
is monitored (perfect environment). But in
economies like India where the unorganised
sector contributes to 45% (post demonetisation)
of the goods sold, implementing this will be a
challenge. I mean I will not expect my kirana wala
to maintain how much tax per product category
has he paid already, what is the amount he is
adding and how much extra tax has he to pay.
• Confusion over GST returns forms:
• According to GST rules, business will have to file 37
forms in a year - 3 each month for CGST, IGST and SGST
and one form at year end.
• That means a lot of paper work need to be done every
month.
• This activity will be troublesome for retail vendors as
they first need to classify their products into various
GST interest rate categories and then do the final
returns filing.
• This might be ok if it is for a month but to do this
regularly every month and then divide the tax into
CGST, IGST and SGST will be taxing. To do this smoothly,
the kirana stores need to have a computer/laptop/tab
in every shop. Does this seem feasible….
• The rate structure of GST is flawed by international
standards because there are as many as 7 rates
(0%,0.25%,3%,5%,12%,18% and 28%) whereas in most of
the countries there's 1 rate or atmost 3 rates.
• This rate structure is also irrational in case of quite a few
products as the same category of products are subjected to
different rates like dhoopbatti at 12% and agarbatti at
5%, open grains attract no tax while packed grains have tax.
• This rate structure has the potential to fuel inflation as
there are two standard rates, 12% and 18%, the latter on
most of the services. The fact that services' sector accounts
for nearby 60% of India's GDP implies that higher rate on
services can give rise to inflation.
• VAT on alcohol, petroleum products as well as electricity tax is not
subsumed in the GST which accounts for nearly 40% of the state's
revenue. A loophole?
• Petroleum and Liquor still under VAT : The government has left
petroleum out of GST for now . Industries that require petroleum
products for manufacturing cannot input for tax credits which will
increase the final price.
• States have started finding ways to make up for the loss of revenues
on the account of certain state taxes merged with GST. For ex- Tamil
Nadu has imposed an additional 30% entertainment tax on cinema
tickets and Maharashtra has additional 2% road tax on motor
vehicles. In the words of finance ministry itself, GST only restricts
the power of states to impose additional taxes and it doesn't
abolish them.
• GST being a destination based tax implies that a
high consumption state will benefit more than a
high production state or a low consumption
state. This will widen the imbalance between
states.
• There are as many as 37 returns to be filed
annually by a business entity if it is operating in
one state. If its operations spread across three
states, this becomes 3x37 which may give a
setback to ease of doing business.
• Exports under GST are '0′ rated so that exporters pay GST
and then get the refund but refunds may not be instant
which may lead to a huge amount of working capital of
exporters getting blocked. According to a news report such
blockage of working capital will severely affect exporter’s
liquidity and enhance the tax burden. If the refunds are not
released by November, then working capital worth about
₹65,000 crore would be stuck. This will have a large impact
on the GDP.
• Imports under GST would be subjected to IGST in addition
to basic custom duty. Unlike earlier under GST imports
would also enjoy input tax credit which implies that
imports are brought at par with domestic goods. This may
give a major setback to the Make in India initiative.
• More importantly, filing a return under GST is completely
online as GST itself is tech driven. Hundreds of towns in
India and a huge unorganised sector is not tech complied.
Besides even those familiar with tech may face
harrassment if the backend infrastructure, GST-Network
doesn't function properly and its site crashes time to time
as it has been experienced in the initial months. As of the
day I'm writing this post (1st October) the government has
set up a ministerial group to look urgently into the glitches
bedevilling the GST Network, the software backbone.
Infosys, the main GSTN software vendor, was given time
until end-October to sort things out. “It is like building a
ship while sailing” Bihar’s deputy chief minister Sushil Modi
said.
• Besides, it was equally important that sufficient time
was given to industries to migrate to GST. Even
technologically advanced New Zealand gave 2 years
time to its industries while Malaysia gave 1 year time.
• In India despite repeated requests from experts,
different sectors and industry chambers to give atleast
4–6 months more time to adopt GST, the government
stuck to the deadline without considering these
concerns.
• As such, so many problems have surfaced in these
initial months which suggests that it may not be a well
thought out tax structure.
• The proposed GST will make imports more
competitive. The complex regulatory and tax laws
and rampant corruption at each stage make
manufacturing in India an activity only for the
brave. If IGST on imports is available as a credit to
a trader as against the existing system, which
does not allow countervailing duty and special
additional duty credits, imported goods will get a
competitive advantage, seriously sabotaging the
Make in India initiative.
• Not one-nation-one-tax on the ground.
• The GST framework provides for central GST
and state GST. Thus, central and state agencies
will share the jurisdiction over assessees. The
division of powers to collect tax substantially
waters down the promise of one-nation-one-
tax. Then, there is inter-state GST, which will
be collected for inter-state transactions of
goods and services.
• Even though GST is likely to eliminate needless
‘interaction’ with central and state tax
authorities, it is possible for central/and(or)
authorities to harass businessmen citing
‘some or other’ lack of compliance etc.
From a consumer point of view, I find
the following as Major Faults in India’s
GST system:
• Too many tax levels lead to lot of
confusion. When you buy a product and the
retailer charges you a certain tax amount, you
are not sure if he is correctly taxing you. It is
hard to remember which all goods fall in
which category and you end up paying more
(specially at the local grocer, who in turn make
money!)
• MRP labels in products do not show the tax
collected. Most articles are marked at MRP
and most shops sell them at MRP. As the tax
on certain goods decrease, no shop owner
decrease the price. However the goods where
tax is increased, the owner sells them at
excess price. So it is for the consumers to bear
the load and sellers increase their margin.
• Prone to inflation. All services have become
expensive from telecom to airline (from 15%
to 18% and 28%). Since majority of India's
GDP is from services, it is quite likely that
inflation may go up. The service sector should
have been kept at 15% or lower to avoid such
risks.
• Consumers are the only payers. We have
adopted Dual GST (CGST and SGST). Thus
double tax is charged in the name of single
taxation system. It just seems to be an
alternate name employed for Central excise
and VAT, just that it increased the tax on many
articles and collected only from consumer/end
user.
• Short sighted, technically immature.
• Most big companies run on ERP systems. SAP,
Oracle are the major players. Accounting and
printing invoices, keeping inventories itself is a
huge business, supplying servers to such software
itself is also is huge business in itself.
• GST portal is trying to be God of all the ERPs
running in India, imagine the server power it
needs.
• The whole plan of implementation is shear short
sighted and mis-guided.
• Welcome to Obituary of Small companies - RIP
• Small and medium scale companies try to run with low cost,
minimum skilled people. They keep the cost lower and generate
huge employment.
• GST allows manually written bills. Compiling the data from such bills
will make buying a accounting software, a computer and internet
connection inevitable. It is a force fed hot ghee.
• Typical payment cycle in Indian B2B market is 60 days. GST is due
before 20th of successive month. Money has not come from
customer and GST need to be paid by own working capital. There is
no option to pay partial and clear off with interest later. Like a
crying child it need to be now & full.
• Urgent implementation without testing the
software and GSTN system with traders and
business people is a mistake and badly speak of
authoritarian way of pushing the agenda(Had BJP
worried about GST impact before 2019 election,
it should have pushed GST in 2014 instead of
DeMo first);
• Education/Training forum for small traders and
businessmen is drastically missing in whole
gamut of GST implementation (Singapore had
engaged people for 2 years before GST in 1994);
• GST currently implemented is basically politicians jointly
pushing their agenda of retaining the state/Central revenue
without giving any importance to consuming people and
complying businessmen (classic example is Luxury cars and
Tobacco products are cheaper while packed grains and
sanitary napkins are expensive);
• Very poor education on Transition rules as
traders/businessmen with huge inventory are caught badly
to observe the extra cost now
• Of course keeping out Petrol/Diesel (Central excise and
State VAT is 58%), Alcohol, etc accounting for 35% of
revenue;
• In villages, there is problem of Internet connectivity
then how can they file on line return? In GST there are
3 forms those would be file every month in certain
date. If someone missed the date then?
• Here Willfulness of tax officer and merchant may
increase. Still there are many vendors who is not aware
about this process. In starting dates if someone missed
the return date then government officers should
behave generous to them. On the other hand we
people should reject the mentality of ‘letting things go’.
• Here ‘ease of doing business’ will succeed?
• First thing is IT infrastructure, ranging from server capacity, internet
speed, user interface, awareness about the GST itself.
• How is the argument that everyone needs tabs and computers?
• As far as I know, upto 20lakh turn over is directly exempted from
GST.
• About updating invoices, well in India anyone hardly made invoices
so forget about uploading them. No standard invoices still exists.
• The whole tax burden is fallen on middle classes, and corporate
companies. Indirect tax collections are only from few organized
pockets.
• The serious flaw is about creating awareness.
• Second thing is the great Indian IT sector must be ripped in
to solve this issues. There has to be massive investment in
backhand infrastructure of GST. Otherwise such issues
always remain.
• IRCTC is somehow a good example for reference.
• Finally the common sense says, it's always a good thing to
have one tax than multiple taxes.
• Of course it is very painful for those who never had concern
about paying taxes or putting things into correct
perspective. They were happy with those many 50 taxes
but unhappy with one GST.
• Because one has to actually upload invoices directly to
government.