M. RATCHANYA, B.Com.,LL.B.,(Hons.) V year
SCHOOL OF LAW, SASTRA DEEMED UNIVERSITY
Goods and Services Tax is described as the game changer of the Indian economy due to its sweeping impact on the businesses in India. The serious challenge faced by the industry and businesses is the shift from the previous tax regime into the Input tax credit of the GST. Many people in the economy are struggling to get adapted to the destination based tax of GST. Goods and Services tax Network (GSTN) which is considered as technology backbone for the revolutionize has a huge IT mandate steadfastly tackling mammoth aggregate of data which GST will spawn. GST though eradicated the cascading effect of tax has a disruptive impact upon the information technology landscape. GSTN which is handled by the government of India has its own chunk of teething conflicts. GST is not a smooth sailing rather a great challenges for the businesses and consumers all over the country. The challenges and issues arising day by day by the causation of GST are numerous. People in the economy should take due care and caution to resolve the conflicts and should take some measures to get adapted under the one unified tax umbrella in an effective manner.
Keywords: Cascading effect, Destination based tax, Input tax credit, Game changer, Unified tax.
India which is a country of unity in diversity and a democratic nation has faced a numerous reforms in the field of indirect taxation for the past two decades. In 2005 the State sales tax which was replaced by Value added tax [VAT] has marked water shed in the Indian economy. The structure of Indirect tax regime in the Indian country has undergone a problematic situation before the implementation of this Value added tax system due to cascading effect of tax in the nation in which a commodity in the market is taxed more than once from the production stage to the final retail sales stage. To curb this dispute the system of VAT was put into force in the economy which made every producer to pay tax on the “value added portion” thereby eradicating the hurdles of cascading effect of tax. As days rolled up shortcoming have been incurred in this VAT system regime and possible remedial measures have been enforced to rationalize the same. On July 1st 1994, a system of taxation services was initiated in India which is a sort of giant leap both in the terms of coverage and increased tax rate. Over the years the newer additions which are made to the existing list has made issues to overlap, lack clarity in the tax structure which creates a situation of confusion and made the tax collection process to avoidable leakages and litigations. So in order to overcome these stringent circumstances, the government decided to harmonize the Good and Services tax so that both can be levied in a comprehensive and rational manner in a new system of tax regime namely the Goods and Services tax [GST]. This implementation of GST in the Indian economy has made the nationals of India to face contemporary challenges and issues.
2. GST HICCUPS:
The Goods and Services tax after its process of implementation have affected the businesses to a large extent in the filing of GST returns and other compliances within three months after it subsumes all central and state tax levies. The working capital block exporters will face the problem arena in which they need to pay for the Goods and Services tax in order to seek refunds. Companies in the economy need to keep track the frequent rate change by the government thereby incorporating the same in their internal structure of the company in a timely manner. In order to claim the credit arises from the GST, all companies need to have GST registration irrespective of whether it has branched or offices situated thereon. In this scenario there paves the way for limitation in the seamless flow of credit which is rightfully due to the assessee. The GST registration in turn will increase the compliance burden on the company. This is due to the reason that for each registration we need to file three returns a month which means 36 returns a year per state. And moreover there are three annual compliances so 39 compliance per state. Here it is very difficult for small businesses as they do not encompass enough man power to file so many returns.[i]
There is an ambiguous factor under GST which causes hardship to the corporate structure. There is lack of clarity under the treatment of value added tax benefits under the state incentive schemes. In the preceding years states rendered benefits by waiving off the value added tax for companies for a assertive period of time. Gujarat, Punjab and Maharashtra invited investments through such schemes. Maharashtra had a Package Scheme of Incentives under which a company could sign an agreement with the government and get a dispensation from charging value added tax. These were the promises made by governments to companies. But the Goods and Services Tax laws do not talk about these benefits, so no one is sure what will transpire to these promises. Taking everything in mind that businesses are facing multiple problems with the Goods and Services Tax, it is imperative for the government to be proactive in deliberating and resolving these issues.[ii]
3. RED-FLAG DISPUTES OF TRADERS:
In a metrical way as the government foresees to resolve the glitches of the GST Network, dealers utilizing the network persistent to grapple with technological issues on the portal. In a adventitious disappointment to the dealers believing for a remedy from filing their GSTR-3B returns at the last moment, the government has categorically disavowed to enhance the deadline for filing the returns, and entreated the taxpayers not to wait till the last day to do so. Bestowing to a report in indianexpress.com, hitches range from payments not getting reflected in challans to issue of the summary in GSTR-1 showing details different from the uploaded details. We glance at the five commonly faced issues by the GSTN users.
3.1. Oppresion of the GSTN Portal:
The divergent havoc that industry experts, tax consultants and small business owners are striving with is the overloading of the GSTN portal, with most of them coerced to file returns early morning or late night to refrain from facing slow processing of details on the portal.
3.2. Counterfactual Data in the error report:
There have been instances of the error reports depicting details of some other client, when the GSTN portal generated error reports aftermath of the upload of details by the taxpayers.[iii]
3.3. More-than-conventional time in spawning of error reports:
According to industry experts, the more than conventional time in generation of error reports can be as high as 24 hours, which develop a lag in exhalation of refunds, generating a lot of frustration among the GSTN users.
3.4. Glitches in numbers inclusive of decimals:
According to a tax expert interfaced by the media house, taxpayers have also face difficulties in entering their utilization credit, if the amount is in decimals. “For example, for a credit of Rs 100.85, the system is not securing utilization of Rs 0.85, due to which the taxpayers are not able to avail utilization of credit for other taxes such as SGST”.
3.5. Deferment of GST deadline causing refunds to get stuck:
According to the report, exporters have mentioned their refunds under GST getting stuck due to extension of GSTR-1 deadline. “Most refunds are being asserted by exporters. For instance an exporter has a refund claim of Rs 100 crore. With the deferment of filing deadlines for GST returns, especially GSTR-1, the kickback process is also stuck”. [iv]
4. TEETHING TROBULES IN GST:
GST, the greatest tax reform since Independence is here. As are the confrontation for businesses across the country. Like everything else, all is not smooth sailing for GST and there are some obvious teething troubles for businesses and end consumers which we will discuss in detail here.
4.1. Switch in Business Software:
Most businesses adopt accounting software or ERPs for filing tax returns which have excise, VAT, and service tax already incorporated in them. The transition to GST will crave businesses to modify their ERPs, too; either by upgrading the software or by purchasing new GST-compliant software. This will edge to increased costs of buying new software and training employees on how to use it. Clear Tax is the first company in India to barrage ready-to-use GST software. It is currently available at reduced prices for SMEs, to assist them to transit to GST to smoothly. In order to supinely the pain of the people, it doesn’t crave to update the extant software and provide free services for first 3 months.
4.2. GST Compliance:
SMEs are still not comprehensively aware of the nuances of the new tax regime. Changing over to a completely new system of taxation requires perspective of the minutiae, which businesses lack right now. Most of them are worried about filing timely returns, but it is significant to note that even before businesses can reach the filing stage they have to render GST-compliant invoices. For a traditionally pen-and-paper economy like India, this change to digital record-keeping is going to be substantial.
4.3. Upsurge in Operating Costs:
Most small businesses in India do not employ tax professionals, and have traditionally preferred to pay taxes and file returns on their own in order to save costs. However, they will require professional assistance to become GST compliant as it is a completely new system. While this will benefit the professionals, the small businesses will have to buck the additional cost of hiring experts. Also, businesses will need to train their employees in GST compliance, further increasing their overhead expenses.
4.4. Policy transformation During the Middle of the Year:
GST will go live and it is practically impossible to cross over from one tax structure to the other in just a day, and hence businesses will end up running both tax systems in parallel, which clout result in confusion and compliance issues.[v]
4.5. Online Procedure:
GST compliance, return filing and payments all have to be done online. Many small businesses are not tech-savvy and do not have the resources for fully computerized compliance. Even as the rest of the nation gets ready to go digital, businesses in small cities across India face a huge technology disputes in the days ahead. Cloud-based software like the Clear Tax GST software could be an answer to this problem. This does not need any downloads, and the process for return filing on Clear Tax GST is very simple. Business owners need only upload their invoices, and the software will populate the return forms automatically with the information from the invoices. Any errors in invoices will be clearly identified by the software in real-time thus up surging efficiency and timeliness.
4.6. Higher Tax Burden for Manufacturing SMEs:
Small businesses in the manufacturing sector will not have it easy in the GST regime. Under the excise laws, only manufacturing business with a turnover exceeding Rs. 1.50 crores had to pay excise duty. Whereas, under GST the turnover limit has been shortened to Rs. 20 lakh, thus increasing the tax burden for many manufacturing SMEs. However, SMEs with a turnover of up to 75 lakhs can prefer for the composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The catch though is these businesses will then not be able to assert any input tax credit. The decision to choose between higher taxes or the composition scheme (and thereby no ITC) will be a tough one for many SMEs.
4.7. No clarity on tax holidays:
Many manufacturers (textile, pharmaceutical, FMCG industries) enjoy tax holidays and state benefit schemes. There is still no notification regarding these benefits. This will mean upsurge in costs for these industries, which will probably be passed on to the end consumers.
4.8. Disruption to Business:
Cloth merchants (unorganized) are impelling on strike to protest against GST. Eateries and drug shops in Chennai are also threatening to protest the regime change – and this is only the tip of the iceberg. In the coming days, we can expect to see more of these protests happening across the country and these will undoubtedly disrupt business. If there’s any solace, it’s in knowing that other countries who implemented GST never had it easy either. Malaysia recently introduced GST in 2014 and faced nationwide strikes and protests. How the Indian government will handle these events is left to be seen.[vi]
5. CHALLENGES FACED BY THE ECONOMY:
As expected Goods and Services Tax (GST) Act, 2017 has changed the Indian tax system fundamentally and is the biggest tax reform since Independence. It automates and simplifies the process of indirect taxation and has replaced the complicated taxes like Value-Added Tax (VAT), Central Sales Tax, Central Excise, Service Tax, or Entry Tax and other indirect taxes. It brought integrity across the country by merging all the duties into one tax and allowed full input tax credit from inputs and capital goods on procurement which is set adjacent to GST output liability.
After Everything, There Are Still Some Issues With The New Indirect Tax System:
- GST compliance procedure is to be carried out through the online portal only. Small and medium businessmen find it difficult as the compliance cost has increased and many of them are not aware of the latest technology;
- The burden of the lower threshold was an issue in previous law; manufacturers were not necessitated to comply with excise rule if the turnover is 1.5 crore or less. With merging into GST, they have to register in case of turnover crosses the limit of 20 lakhs under GST. This has created the problem for Small Business Holders;
- Monthly every assessee has to file 3 returns and 1 annual return which makes total 37 returns to be filed annually. This process has up surged the workload;
- In GST, three types of taxes are levied i.e. CGST, SGST, and IGST. CGST and SGST are levied on intrastate sale and IGST is levied on the inter-state sale. This is creating a dispute related to confusion between types of category to be mention under which head;
- The effective rate of Service Tax was 15% which has increased to 18- 28% in GST. Therefore, Service Industry is now addressing the higher taxes;
- Sixthly, Excess Working Capital Requirement. Tax on the stock transfer jounced the working capital requirement. The increased Interest cost has resulted in higher cost of goods;
- There is no huge discrepancy between the tax rate for luxury goods and normal goods compared to earlier laws, makes it hard for SMEs to compete with Non-SMEs;
- There are many more disputes; the businessmen are facing due to the type and nature of businesses and divergent industries.[vii]
Thus Goods and Services Tax which is predominantly a tax on business transactions is unlikely to have a direct impact on the common man. However, in case businesses persistent to face working capital problems due to input credit blocks arising out of the input tax credit matching mechanism, as they may be prompted to upsurge prices, which would ultimately be borne by the end consumer. Such a practice may, however, be checked by the anti-profiteering mechanism applicable under the Goods and Services Tax law.[viii] The government on the whole is trying to reduce the burden of compliance for businesses by relaxing the return filing requirements. Also, the provisions of TCS on e-commerce and registration for online sellers have also been relaxed for the time being. Change is definitely never easy. The government is taking remedial measures to smoothen the road to GST. It is important to take a leaf from global economies that have implemented GST before us, and who overcame the teething troubles to experience the advantages of having a unified tax system and easy input credits. As GST has been implemented in the Indian economy most of the current challenges of this move will be a story of the past. India has become a single market where goods can move freely and there will lesser compliances to deal with for businesses.
[i] Interview: Capital block, slow refunds, ambiguities in law among major GST hiccups, says tax expert Available at https://scroll.in/article/852207/interview-capital-block-slow-refunds-ambiguities-in-law-among-major-gst-hiccups-says-tax-expert
[iii] Five common issues which users of GST Network face while using the portal Available at http://www.financialexpress.com/market/five-common-issues-which-users-of-the-gst-network-face-while-using-the-portal/861575/
[v] 8 Challenges That Businesses Need To Overcome in the GST Regime Available at http://www.business-standard.com/content/specials/8-challenges-that-businesses-need-to-overcome-in-the-gst-regime-117070100896_1.html
[vii] Problems a Businessman May Face in GST After Implementation Available at https://blog.saginfotech.com/problems-a-businessman-may-face-in-gst-after-implementation