GST ISSUES SEEN ACROSS INDIA
Several months ago, on July 1st, 2017, India as a nation had taken a giant leap towards a new order in its Taxation History. GST is considered as major reformation in tax history. However, more than 8 months down the line and after multiple policy updates, it seems that not everything has unfolded as planned. This was, however, a possibility and the Government was prepared to incur short-term losses in exchange for large future gains. GST in India not only boasts of one of the highest tax rates but also consists of the largest number of tax slabs.
Among Asian countries, India has the highest standard GST rate. On the planet, it is second only to Chile. The non-zero rated products ( 5, 12, 18 and 28 percent) combined with the remaining zero-rated products and the 3 percent GST rated Gold are a sharp deviation from the one Nation one GST Tax dream. Petroleum products, power, and real estate are still outside the GST ambit.
Tax Slabs: Problems for Small Unorganised Wholesalers
Still fresh from the impact of demonetization, the unorganized cash based small wholesalers were served a final knockout with GST. Small shopkeepers and even dealers are now forced to buy their daily grocery supplies. The unorganized sector needs to maintain proper GST compliant bills and invoices to survive in the post-GST regime.
Many food retailers, especially small shopkeepers are also confused about how to charge GST on different items in a single dish. For example, a ‘Mix vegetable’ contains different types of vegetables and even some fruits and dry-fruits, so whether they should charge different taxes or a single tax on the dish.
Creating Invoices and Filing Returns Not Easy
Creating different invoices for goods with different GST rates can be tedious and time-consuming. SMEs (small and medium enterprise) are the most affected by this complex invoice maintaining system.
Filing GST Returns Remains Error-Prone
The tax return filing procedure under GST is also becoming a major cause of a headache for small businesses. No one seems to be sure about the appropriate process for filing GST return. If you are not sure about this, it would be wise to take the help of a CA.
GST on Local (GST Exempted) Goods
Clothing and footwear that cost below Rs. 500 are exempted from GST. But many shopkeepers, especially retail chains are still charging GST rate of 5% in their bills for such items. The fact that shopkeepers producing computerized bills and having an AC in the shop are allowed to charge GST on all their goods encourages such practices.
Some Pertinent Issues for Small Traders
GST implies additional operational costs for Small businesses. In a developing country like India, not all SMEs will be able to afford the cost of computers and accountants required to implement GST (make bills and file tax returns). 28% GST rate on some products like plywood, automobile parts and electronic items forces potential buyers to opt for unregistered dealers.
Small businesses that have a small turnover and need not pay GST face trust issues. Buyers demand bills from even those sellers who are exempted from GST.
Issues for E-commerce Companies
E-commerce giants like Flip kart, Amazon also have not escaped the after effects of GST rollout. TCS has to be collected by the e-commerce companies from the sellers at the time of payment.
The capital blockage will hamper day to day operational cost due to TCS provisions. The GST council has fixed the 1 percent TCS over the deduction made while payment to the sellers.
The consistent policy rollbacks and amendments, powered by the glitchy GSTN Network, have enabled massive tax evasion. The benevolent composition scheme, as well as windows for filing quarterly returns, raises concerns about the intention and execution prowess of the government at the centre. The increased pool of registered taxpayers has had little but no impact on Revenue generation. Only 70% of taxpayers file returns regularly. A major headache is, however, the mismatch between initial and final returns filed by taxpayers.
GST and Fiscal Fractures
The GST revenue shortfall promises large dents in the Centre and states’ fiscal applecart. The Centre and State budgets will be pegged down by the gap in Tax revenue. The common man will find himself on the receiving end if such gap in revenue continues. To bring states on the same wavelength and approve GST, the government had offered state compensations to the tune of Rs 60,000 crore for July to March in FY18. In order to stay true to its pre-GST promises, it is estimated the Central Government will have to make payment to the tune of Rs 90,000 crore further in FY19.
Understandably, the Budget 2018 unleashed record taxation of over Rs 90,000 crore in the form of capital gains tax, increase in customs duty, cess and surcharge. The fall in revenue has further made states apprehensive about bringing petroleum products and real estate under the GST ambit.
Adapting to IT Ecosystem is Hard
Indian economy is majorly driven by small business units i.e SMEs. It will be unfair to expect small-scale business firms to make the transition to an online IT platform and expect no errors in return filing. It is an uphill task for the majority of our working population which has little hands-on experience with IT solutions. The cost of SRP deployment is a major concern for micro-small-medium scale enterprises.
For a frictionless and less burdened GST, the government is looking to shore up revenues to the tune of Rs 1 lakh crore per month. It would be interesting to see if the Government still has the courage to take stern measures against tax evaders and other business firms involved in anti-profiteering activities. The GST was projected as India’s second tryst with destiny. However, the financial budget 2018 has thrown a wide plethora of taxes at the Indians to gobble up. Increased taxation it seems is the only way for generating operational revenues for a complex system like GST in the nonlinear Indian Demographics.
The present GST appears to deliver little on promises. The GST rollout it seems was done with very little homework both at operational and technical ends. For the time being, the GST Council needs to pay heed to grow public as well as taxpayer grievances. It must take note of the fact that policy must be designed to reduce the compliance burden on the taxpayers. Compliance strategies must include compulsory education and assistance programs and risk-based audit programs. It must also run communications campaign that enlightens the various effects as well as benefits of GST amidst businesses, consumers and important intermediaries.
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