Goods and services tax (“GST”) is an indirect tax for the entire country levied on the supply of goods and services. GST is India’s single unified tax which reflects an overall shift from taxing goods and services at the point of supply to where they’re consumed. India is also looking to boost tax revenue by moving the existing sales taxes to a new harmonised GST system. GST was touted as biggest taxation reform since independence.
The recent 32nd GST council meet announced new registration criteria for businesses, doubling the sales threshold for GST registration to INR 40 Lakh, allowance to certain states of northeast to keep threshold at INR 10 lakhs as against INR 20 lakhs for other states.One of the key decisions taken at this council meeting was to increase the existing turnover limit of composition scheme to INR 1.5 crore. Special category states have been given the option to decide about the composition limit in their respective states. Further, it declared that the new GST rates will be applicable from April 1, 2019 on under construction properties.
On the roadmap ahead, industry leaders opine that GST council should take charge for aligning tax rules, however, the question remains if it has managed to achieve its intended purposes? Not wholly, it seems.
Below are some highlighted core issues being faced under present system of GST:
- Different states, different rules
Government’s one time exception to certain states highlights increased exemption limit which is applicable to only those who have businesses within a state and inter-state businesses trade.
- Operational challenges
From applying the tax rules to individual products through filing and payment, the operational demands of GST are much greater than any standard tax.
- Evaders bonanza
Increased pool of registered taxpayers impacted less on revenue generation as only 70% of taxpayers file returns regularly. There is an estimated mismatch of INR 34,000 crore tax liabilities reported in GSTR-1 and GSTR-3B. The present GST structure has no mechanism for checking discrepancies found between GST returns for July till December and final returns filed by the taxpayers. On an average of 84% taxpayers were unable to correctly report revenue statements. The discrepancies demand that the GST Council now needs to take rigorous measures to tackle the menace of tax evasion through under-invoicing.
- Fiscal features
Deficit in GST revenue promises large dents in the centre and states’ fiscal applecart. A layman will find himself on the receiving end if such gap in the revenue continues.
- Technical issues
- i. Credit reversal – The credit claimed on the purchases in which the payment has not been given to the suppliers within 180 days must be reversed. To keep notice of these things might lead to an extra burden on the organization.
- ii. Pertinent issues for small traders – Additional operation costs are involved in small trader businesses. Sellers even if exempted from GST need to submit bill to buyers. Without the certificate of GST exemption, small shop owners find themselves marooned and immobile.
- iii. E-commerce companies – The capital blockage will hamper day to day operational cost due to tax collected at source (TCS) provisions. GST council has fixed 1% TCS over the deduction made while payment to the sellers.
- AAR (Authority for advance Ruling)
Recent changes in AAR has confused the Industry with divergent rulings given on a single issues. Different states following different rulings have emerged as a major issue add to the pan-India complexities for businesses.
- ITC (Input tax credit)
Presently, GST is levied at an effective rate of 12% on normal housing and 8% on affordable housing payments, where completion certificate has not been issued at the time of sales. Withdrawal for ITC policy can block credit chain and hike in cost of construction. Real estate developers may pass on this burden to the ultimate buyers in the form of higher sale price. Lower slab with restriction on input tax credit is likely to lead to cost-benefit analysis of lower rate vis-à-vis loss of credit.
- Tax filing
In the present GST, each registered business person is required to fill in a host of forms. Some temporary changes introduced in the GST calculated that a business operating in 31 states of India would have had to file 37 forms per annum per state making it a total of 1,147 forms annually. In accordance with proposed system, only one form per month and one annual return per state would be needed to be filed. So, the forms to be filled would be around one-third of the present system and the paperwork would be far less. The required monitoring would also get greatly simplified.
In addition to this, industry believes that the discretion to states for allowing different specifications and different thresholds for different states from a registration perspective under GST may debase the ‘One Nation, One Tax’ code of GST and might eventually result in complicating the entire tax framework. Thus, a uniform threshold across India is the best way forward as the same is in line with the founding principles of GST.
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