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5 years of GST in India

Today on 01/07/2022, GST has successfully completed its 5 years. Like any other things, GST also had its ups and downs or say pros and cons. Here I have tried to summarise in 10 achievements and opportunities that became possible because of GST and 10 risks and challenges arising due to GST.

Achievements and Opportunities during 5 years of GST

1. Seamless Transportation:-

After introduction of GST, the goods movement is tracked by the use of eway bill system and with the help of RFID mechanism only selected vehicles are intercepted, which are selected on the basis of certain risk factors.

Further if the vehicle is inspected once in one journey, it can’t be intercepted again anywhere on the route even in any other state. Further even at the first time, if the vehicles are inspected, they can’t be stopped for more than half hour unless some non compliance is found. These reasons have led to substantial saving of time and cost in goods transportation.

2. Substantially reduced compliance due to replacement of multiple laws by one law:-

Pre GST regime required simultaneous compliance of multiple laws like Central excise, VAT, Entry Tax, Central Sales tax and many other. But Post GST, only one law has to be taken care of and to the much extent, a business unit has to deal either with the state department or central department, unlike pre GST regime where they had to deal with multiple department simultaneously.

3. Seamless flow of credit among states:

Earlier there was restriction in ITC flow of State levies for inter-state trade. Now you can obtain goods and services from PAN India and get ITC unhindered. This has reduced the cost of tax burden substantially.

4. Avoidance of Tax-On-Tax:-

In Pre-GST regime, taxes like central exise, etc, were considered as part of cost for arriving at taxable value for State levies like sales tax. Which lead to taxing of taxes. But now, seamless ITC of GST is available from the first stage till last stage. Thus the Taxing of taxes has been reduced to substantial extent.

5. Ease of compliance:-

Earlier, a taxpayer had to comply multiple tax laws and follow the procedures of all of them, but now all laws have been merged in one and single procedure has to be followed. Consequently compliance has become easier especially for corporate manufacturers who had to earlier comply a plethora of laws and now all replaced by one.

6. Transparency:-

Earlier, majority system was offline, which led to lack of transparency, responsibility and accountability fixing. But now since efforts are made to bring everything online, it has become more transparent and easier to fix responsibility on all stakeholders.

7. Concurrent approach instead of postmortem approach:-

Now efforts are made to communicate and highlight any kind of discrepancies, be it from the side of GST department or buyer or supplier on real time or close to real time basis instead of finding out at the time of audits i.e. after years.

8. Reduced corruption:-

Since the process have been made more objective, and with decrease in discretion power of the authorities and with increased transparency and accountability, the scope of corruption have reduced substantially. Further the routine operations like processing of various types of applications like registrations, refund etc. have become more time bound and quick.

9. Faceless process:-

The efforts are being made to convert the process into faceless mechanism. This will make the system robust, as the tax evaders will not be able to escape, and the genuine taxpayers will get justice.

10. Opportunity for rural business units to serve at national platform due to legal uniformity and technological integration.

The standardization of tax process all over India makes it easier for MSME to make supplies all over India because now they can accurately assess the tax impact due to sales in other states of the country and majority of the compliances can also be taken care of from their state itself. No statewise compliance is required. This homogeneous tax system makes it possible for the MSME to conduct trade at national level. This is further supported by the development of e-commerce website, which would have been very difficult in case of pre-GST regime.

Challenges and Risks during 5 years of GST

1. Huge added cost of technology required to comply GST and train the staff to use the technology:-

Since the focus of government is to capture transaction level data at real time basis, and to make it completely online, this has substantially increased the need for taxpayer to obtain and prepare a software which is capable of not just complying the GST law as it exists, but also capable of updating itself with the super frequent changes introduced in GST law.
This has added a substantial cost of technology to the taxpayer.

2. Huge cost of bonafide non compliances.

Since maximum things are online and everything that you can possibly imagine has to be reported in GST at transaction level, any bonafide error, whether it is due to an accounting staff, or accounting software or any other reason, the cost in terms of interest and penalty is very high. Further with no facility to amend the GST returns, it has made it further costly for the taxpayers.

But the authorities are not covered by such harsh system. If there is any mistake by them , they can easily issue a letter and raise demand with interest if there is negative financial impact of mistake done by GST Authorities.

3. Focus on tracking transaction level mismatches instead of net revenue impact, leads to lot of unnecessary reconciliation and wastage of time.

GST is being developed with a mindset that all kind of transactions should fit in the reporting boundaries of GST and should be reported exactly in the manner as is expected by the GST system. A very old and golden axiom taught to us during our school and college days was “Substance over form”. This is very conveniently ignored while determining whether the error done by taxpayer is actually revenue neutral or bonafide non payment of tax or malafide tax evasion.

In cases where u have wrongly reported sales return transactions as purchases, where the net revenue impact is NIL, GST considers this as a case of Excess claim of ITC and then you suffer interest @ 24% p.a along with penalty ranging from 15% to 100%. And with respect of tax excess paid in this case, it is upto you. If the time limit of 2 years have not yet passed, then you may go ahead and claim refund of the same, which you will get back without any interest if the authority is convinced that you are eligible at all.

Such mindset develops a negative reputation for the department and the law. Gives an impression that the law is not fair for the taxpayers, but substantially biased towards protecting a single penny of Government.

Further, an attempt is made to recover each single penny of revenue that is escaped, irrespective of the administrative cost that is incurred.

Simple example is, GSTN could have simply preferred reconciliation at the GST Number level instead of invoice level reconciliation. But they chose to ask taxpayer to keep record of each and every invoice and conduct various reporting activities in this respect. This substantially increases manpower cost whether at the level of GST department, or account office or software developer etc.

4. Very big risk for supplies covered in 18/28% bracket because a small bonafide mistake can cost you a fortune..!:-

GST is a such a type of tax, where the tax is levied at transaction level, and the tax burden has to be borne by the ultimate consumer of the final product.
But imagine a situation where you collected tax at the lower rate due to different interpretation or a situation where you claimed exemption of an item, which is otherwise taxable at @ 18/28% as per GST authorities. Later on turns out that the authorities are correct and you had actually mistaken in doing classification, then just imagine the quantum of Tax+Interest+Penalty. In some cases it case exceed even the Sale value.

Here the burden of taxpayer had been NIL if he had collected the tax amount from buyer at the time of sale, but now the burden can even exceed the sale amount. This may even endanger the chances of business continuity. This needs to be looked into by government. Since all the tax is being paid by the taxpayer from his pocket already, there is no need for penalty atleast…!

5. Delayed justice:-

What to say about this..! Appeallate tribunal not yet functional. First appeals pending for hearing opportunity even after years…! Officers going fearless, as the assessee has got no other option because the appeals are going to be heard maybe after years by which the matter may not even hold the relevance..!

This is not what we call justice. Even the appeal mechanisms need to be time bound..! Even at the first stage of adjudication, taxpayer is given handful days to prepare and provide plethora of reconciliations as required by the GST department, and after that GST officers have got all the liberty to keep the case open and not take action for months and years without any justified reason.

6. Costly justice mechanism:-

Appeal mechanism is costly for MSME for following reasons:-

  • Legal research required remains same irrespective of the amount in dispute. So the cost of same for small taxpayers is some times more than the amount of dispute itself. There they have no option but to surrender in front of GST authorities
  • It also requires pre-deposit.
  • If at all the taxpayers defeats all hurdles and gets the appeal order in his favour, then government says where refund is to be provided by government to the taxpayer, then the taxpayer will get refund only and not the interest for the period between OIO and Appeal Order, where as if the taxpayer loses, he will have to pay interest @ 18% p.a. along with penalty. Can you imagine the gap and intensity of risk required to be taken if the MSME wants to go for appeal?
  • 5 years have completed, still there is no Appellate tribunal. No wonder..!! If government could give a hint how much more do the taxpayer have to wait for justice?
  • Due to the above reasons, the taxpayer has to unwillingly succumb to the pressure and demands of GST authorities, because sometimes seeking justice is much costlier than giving up the fight against GST department.

7. Large scale units and MSME are treated at par at many instances.

GST law is uniform for all big and small enterprise. The amount of data and compliance required by GST portal does not show any sympathy to small scale businesses. Be it the matter of GST reconciliations, Ammendments, E-way bills, or reconciliation of GSTR9 vs GSTR 9C vs GSTR 3B vs GSTR 1 vs HSN summary vs Audited books of accounts, GST treats the big and the small equally.

GST compliance requires substantial cost of technology and a trained person who is learned enough to quickly comprehend the changing demands of GST ACT along with solving the queries of GST portal and repeatedly suffer due to errors done by the portal. Small taxpayer wonders, whether he should first learn how to do business or learn the nitty gritty of GST compliance or incur heavy compliance cost?

8. Distrust among State and Centre for revenue sharing.

This is a subject where distrust is inherent. Revenue shared by centre with states will never be sufficient justified for the states and it will always be more for the centre. This creates panic amongst the revenue departements and sometimes to the extent that the complete fundamental of the GST Act, sometimes becomes a subject of doubt. Whereas if at all the dispute remains unsettled, we know who is going to bear the ultimate burden.. (The final consumer right…?)

9. Slave of technology

Why we say GST is making us slave of technology? Lets read the below reasons:-

  • Everything is online. If there is any problem with either the portal, electricity hardware or anything, there is no offline backup. Everything will come to a standstill. Eg. E-invoice portal is down or e-way bill portal is down. All transactions and dispatches will come to halt unless.
  • If any particular module of portal is not yet developed as required for compliance by the Act, then Government will have no option but to exempt those provisions and defer the implementation of the same..!
  • If there is any issue with the data of any taxpayer, then there is no manual backup. He will have to wait for the grievance to be resolved by the GST Grievance team to solve the glitch (subject to their understanding of the issue). Sometimes you may have to wait for months to get your problems solved. But we must accept, that the grievances redressal mechanism is dong better than expected and they respond to all queries within hours and solve the same within 2-3 working days in most cases.

10. Gap between law and portal:

There are certain limitations imposed intentionally/unintentionally by GST portal which is otherwise not mentioned anywhere in GST Law. Eg. The option of Adding more than one trade names was earlier not available on GST portal but the same is allowed now. There was no such restriction in law since beginning but GST portal added this feature after 5 years.

There have been instances, where there is Gap in mechanism followed by GST portal and that prescribed by GST law and that gap naturally takes time to be met and resolved, but during that time the taxpayers become the victim and get stuck in unnecessary litigation.

There have been instances where GST portal issues advisory and the GST officers straight away deny to follow the advisory as mentioned on the portal because they feel that they are not bound by the advisory issued by GST Portal. Tell me where the taxpayer will go and whom will they follow?

GST is definitely very close to our heart as it is a wonderful idea with a very elaborated act and with a very appropriate aim of making it a One nation One tax regime. It is a fiscal revolution in real terms. But to reap the maximum benefits, we need to make sure that as taxpayers, we should make a little extra effort to avoid getting trapped in inefficiencies of this act and reap the benefit of its positive features to its fullest and as government, they should not just focus on increasing revenue, but also on a harmonious culture where the penalty for bonafide errors should not be to such extent that the survival of taxpayer comes into question and they lose trust in the GST and ideas behind it. The spirit of GST should be protected and should be implemented in such way that only the intentional defaulters fears GST and not the bonafide taxpayer.

Author Bio

I am into GST practice since 2016 at a Surat based partnership firm. View Full Profile

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