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The Goods and Services Tax (GST) is a comprehensive indirect taxation system that was launched in India in 2017. It replaced multiple taxes levied by the state and union government and created a unified taxation system. The GST is seen as a game changer for the Indian economy and is expected to transform the economic landscape of the country over the long-term. However, despite its positive features, the implementation of GST has been mired with challenges. In order to ensure the smooth functioning of the new taxation system, there is a need to address various issues and to improve certain aspects of the GST framework. India has made great strides in implementing the Goods and Services Tax (GST), a tax which subsumes multiple taxes that are currently applicable. Despite the changes made, several areas still pose challenges to businesses, taxpayers and the government. Here are some of the changes that should be made to the GST system in India to improve its effectiveness:

Issues to be Addressed

1. A major issue with the GST is the number of categories and the rate of taxes applicable on various goods and services. Currently, the system has four main tax slabs of 5%, 12%, 18% and 28%, in addition to other cesses, making it overly complicated as people are not able to easily and comprehensively understand the applicable tax on different goods and services. Furthermore, the number of commodities being taxed is also extremely high, and some claim that the same goods and services are being taxed multiple times by different states.

2. A lack of clarity with regard to various issues ranging from GST forms, filing and accreditation, to state-level laws related to the GST, has been a source of concern for many consumers and businesses. Additionally, the technical issues faced by the IT infrastructure implementing the GST has further caused a lot of headaches. This has resulted in a loss of time and money for both individuals and firms.

3. Tax evasion is another major challenge faced by the system, with several small businesses dodging taxes. This creates an uneven playing field as honest taxpayers are disadvantaged by those who are willing to evade taxes. This is further complicated by the presence of unofficial ‘B2C’ transactions which are unregulated, making them difficult to track.

4. The registration process for businesses has also been a source of discontent despite the government’s efforts to simplify it. Businesses have to go through a complicated regulatory process and meet certain eligibility criteria before they can receive GST registration. Furthermore, certain small businesses and startups have found the scrutiny and monitoring of GST returns to be overly intrusive and bureaucratic.

5. Streamline the Compliance Requirements: At present, businesses are burdened with a large number of multiple and complex filing procedures that are required to be done on monthly, quarterly or annually basis depending on their turnover. This process should be simplified and tedious forms should be replaced with a single comprehensive return which is simple, user friendly and easy to comply with.

6. Comprehensive IT Framework: Currently, the GST framework operates on a Hyper Text Transfer Protocol Secure (HTTPS) which is not up to the mark. A more robust and secure system such as a reliable cloud-based IT platform should be put in place which can efficiently handle large bytes of data generated every day.

7. One way of improving the GST system is by reducing the number of tax slabs and categories, thereby making it simpler and more comprehensible. This will also reduce the scope of evasion and bring in more taxpayers into the formal stream.

8. To reduce the inflationary impact of GST on essential commodities, the government should provide tax exemptions for basic items like medical supplies, construction materials for low cost housing projects, and primary education materials.

9. The government should also create more incentives for businesses to comply with the system. For instance, it can set up a GST amnesty program to waive penalties and outstanding dues of honest taxpayers, while strictly cracking down on tax evaders.

10. Comprehensive IT Framework: Currently, the GST framework operates on a Hyper Text Transfer Protocol Secure (HTTPS) which is not up to the mark. A more robust and secure system such as a reliable cloud-based IT platform should be put in place which can efficiently handle large bytes of data generated every day.

11. Realtime Payments: At present, the only way to track payments is through the periodic filing of GST returns. With a real-time payments platform, businesses can get an instantaneous view of payments made and received on the GST portal. This would help businesses to better manage their working capital requirements.

12. Deduction of Input Tax Credit: Input tax credit (ITC) is a set-off that a business can claim against output taxes paid on incoming goods or services. The problems business entities face due to ineligible ITC deduction are manifold, ranging from confusion about eligibility, lack of documentation, delay in issuance of invoices and disputes between counterparties. In order to ensure seamless compliance, there is a need for an effective system that makes switching to the GST easier.

13. Process Simplification: Many processes such as the setting up of tax registrations, the filing of returns, issuance of refund and filing of documents are complicated and time consuming. The procedures should be simplified to facilitate compliance and reduce the strain on businesses.

14. Uninterrupted Support by the GST Network: Although the GSTN has been set up to administer the Goods and Services Tax in India, it has been found to be underprepared and understaffed. The support team should be expanded and improved in order to ensure process stability and resolve any issues with taxpayer grievances effectively.

14. Despite its clear benefits, the implementation of the GST still has a long way to go. As we have explored here, there are several issues with the system that need to be addressed to ensure that it operates at its optimal effectiveness. The government should take proactive steps to reduce the complexity and improve the implementation of the system by ensuring sufficient time to file tax returns, setting up incentives to increase compliance, and providing adequate exemptions to those commodities whose prices have been adversely impacted. Moreover, the government can motivate taxpayers to voluntarily adopt the new taxation system by improving the overall clarity and communication of the process. With such efforts, we can ensure that the GST is able to fulfil its true potential and contribute to the growth of the Indian economy.

(Author can be reached at email address or on Mobile No. 9990365673)

Disclaimer:  “Neither this article nor the information contained herein shall in any way be construed as forming a contract or shall constitute professional advice required before acting upon any matter. CA Sharad Kumar Sharma has taken all due care in the preparation of this article for accuracy in its contents at the time of publication. However, no liability shall be accepted by him in the event of any direct, indirect or consequential damages arising out of or in any way connected with the use of this article or its contents. “

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