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8 GST Challenges Faced By Business Units

Although GST has been hailed as a tax reform in India, there have been quite number aspects that were highlighted when the time for implementation came around. It was meant to substitute all indirect forms of taxations like VAT but the reality is somewhat different.

There are a number of things about GST that posed some challenges and tradesmen and regular consumers alike were affected by it. Here are some of the things that came up:

  1. The GST Constitutional Amendment Bill received a setback right in the Parliament as although it was passed by the Lok Sabha in May 2015, it was not passed in the Rajya Sabha during the monsoon and winter sessions.
  2. Even after it was done, quite a bit of opposition was received from the respective state governments. They wanted the GST bill to be put on the public domain and allot sufficient time for the stakeholders to express their views.

  3. The success of GST tax depended mostly in two vital factors- the Revenue Neutral Rate and the Threshold limit. The RNR is the rate at which no revenue losses will occur to the government after its implementation. It would affect India Inc is a very adverse manner if it is higher than the present tax structure. Based on a study conducted by the National Institute of Public Finance and Policy, the RNR was decided at 27% but later it was lowered to 17%. However, many aspects of business were severely affected because of this. You should also be aware of GST effect on small business if you are planning to start a business in India.

  4. The threshold limit of turnover for dealers under GST was another controversial topic between the government and the Empowered Committee, which was aimed to broaden the tax base under Goods and Services Tax. The calculator could be used to calculate exactly the particular amount of tax per turnover.

  5. Another factor that could impact the success of GST was the robust IT backbone which connected all state governments, trade and industry, banks and all other stakeholders, and all of it on a real time basis. Goods and Services Tax Network had already been incorporated by the government to develop a Goods and Services Tax portal and the front end system for trade, front end system for trade and industry and back end system for all government agencies. This would also ensure technology support for registration, return filing for tax payment, MIS and other areas on GST portal to all stakeholders.

  6. Questions were also raised regarding whether the staff was adequately trained for the implementation of GST. Since it is quite different from the other indirect taxes that were previously in use, tax administration staff at both Central and state levels need proper training regarding concept, legislation and procedure to understand the new system completely. The entire system has to be relearned and not everyone is on the same page whether this has been done or not, which was why there was such a lot of confusion during the implementation.

  7. It was also decided as per the Constitutional Amendment Bill placed in the Lok Sabha, it was decided that states be allowed to levy an additional one percent non- vatable tax for interstate good supply to make up for the loss of revenue that the states suffered with the implementation of GST. There was also a lot of contestation regarding this and it was abolished by the Empowered Committee eventually.

  8. The taxing events of the “manufacture under central excise” and “sale under VAT” and “provision of service under service tax” were also set to converge under “Supply” in GST, as in, GST would be implemented on the event of the supply of goods and services. The Place of Supply would form an important factor to determine the place of provision of goods and services.

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