GST’s Issues and Problems: Solutions 2024 India

The introduction of Goods and Services Tax (GST) on July 1, 2017 was hailed as a landmark moment in India’s taxation history. This new unified indirect tax system was meant to simplify taxation, remove cascading effects, promote tax compliance and boost economic growth.

However, more than 4 years since its rollout, GST continues to face several roadblocks that are impacting businesses, government revenues and the economy. Let’s examine the key ongoing issues and problems with GST implementation in India.

Technical Issues Plaguing GST

The GST Network (GSTN) – the IT backbone supporting GST – has faced glitches and outages ever since GST’s introduction. Some major technical issues include:

• Tight return filing deadlines – The due date for September GST returns is too short, not giving taxpayers enough time to claim input tax credit (ITC) before return filing. This leads to interest liabilities.
• Credit reversal requirements – Taxpayers have to reverse ITC if payment to vendors is not made within 180 days. This adds compliance burden for tracking payments.
• Lack of downloadable GSTR-2A – Since the annual GSTR-2A cannot be downloaded, it becomes difficult for taxpayers to match books of account and file accurate returns.
• No modification facility in GSTR-3B – There is no provision to amend GSTR-3B after filing. Even small errors require filing a revised return and paying interest.
• Ambiguity in TRAN-1 form – The tax department sends notices to all TRAN-1 filers, increasing hassles for genuine taxpayers.

The GST Council needs to address these procedural issues on priority to reduce difficulties faced by taxpayers across India.

Problems Faced by Small Businesses

Small businesses with turnover under ₹20 lakhs were expected to benefit the most from GST. However, small traders are facing several challenges:

• High compliance cost – Additional expenses for hardware, accounting software and accountants for GST compliance.
• No GST exemption benefits – Despite being exempt, small businesses face demands for GST bills from buyers.
• Pricing challenges – Difficulty in ascribing MRP for handmade products like artisan goods. Dealer confusion on applicable GST rate.
• Lack of awareness – GST requires basic IT literacy. But many small units are run by illiterate artisans unable to issue GST invoices.

The government needs to increase awareness and reduce compliance burden for small businesses to enable them to focus on growth.

E-commerce Companies’ Struggles

E-commerce giants also faced unexpected challenges after GST implementation:

• Capital lock up – TCS (Tax Collection at Source) provisions lead to working capital blockage, affecting day-to-day operations.
• Additional logistics costs – Interstate supply of goods was seamless pre-GST but now attracts SGST, increasing costs.
• Compliance burden – E-commerce operators must collect TCS from sellers on each transaction and file monthly TCS returns in addition to usual GST returns.

The GST Council should tweak provisions to lower compliance burden and operational costs for e-commerce companies.

E-way Bill and Interstate Trade

The e-way bill mechanism was introduced to track interstate movement of goods and prevent evasion. However, roll out issues created havoc:

• Technical glitches – Network failures on e-way bill launch date left transporters stranded and highways deserted.
• Procedural difficulties – Constant expiry and need to regenerate e-way bill for each shipment increases hassles for transport companies.
• Impact on supply chain – Disruptions due to e-way bill compliance leads to delays and wastage for time-sensitive sectors like cold storage.

The e-way bill system needs stabilization along with a simplification of procedures to prevent disruptions to interstate trade.

Tax Evasion Becoming Easier

Frequent changes in GST rates and procedures, along with glitches have facilitated increased tax evasion:

• GST rate cuts – Reduced rates on over 200 items and a generous composition scheme attracted non-compliant dealers.
• Return filing delays – Only 70% of GST taxpayers file returns regularly. Delayed filing enables evasion.
• GSTR-1 and GSTR-3B mismatch – ₹34,000 crore differences indicate large-scale under-reporting of revenue by businesses as per a 2019 CAG report.
• Fake invoicing – GST has seen a spurt in bogus billing networks misusing input tax credit. 225 fake GSTIN entities identified till March 2022.

The GST Council needs to plug loopholes and take strict action against fake invoicing, under-reporting and delayed filing to shore up collections.

Revenue Shortfall Impacting Budgets

GST revenue shortfall has been a constant issue, falling short of projections by ₹1-2 lakh crore each year:

• State compensation – Centre paid ₹90,000+ crore in FY19 to compensate states for GST losses, against projected ₹60,000 crore.
• Fiscal deficit – Revenue loss forces increased borrowing and taxation to fund budgets, increasing common man’s burden.
• Subsuming fuels difficult – States unwilling to bring petrol, diesel etc. under GST due to existing revenue uncertainty.

Revenue augmentation measures like improved compliance and expanded tax base are vital for GST stability.

Difficulty Adapting to the IT Ecosystem

The main challenges faced in moving to an IT-driven tax system are:

• Digital literacy – Majority of small businesses in India have limited technology exposure and struggle with digital solutions.
• Procedural knowledge – GST involves regular invoice data uploads, reconciliations, report creation and return filing. Lack of expertise in these activities leads to errors.
• Cost of compliance – Smaller firms cannot afford expensive ERP software or dedicated compliance teams, resulting in compliance gaps.

Simplified procedures and extensive taxpayer education drives can enable smooth transitioning to GST technology.

Widespread Confusion

The multiple rate slabs, frequently changed rates, complicated procedures and compliance needs have led to mass confusion and instability:

• Too many tax slabs – 0%, 0.25%, 3%, 5%, 12%, 18% and 28% GST rates, apart from exempt items, are difficult to keep track of.
• Frequent rate changes – 200+ items have seen rate cuts since GST inception. Frequent changes become difficult to adapt to.
• Partial coverage – Crude oil, natural gas, aviation fuel, alcohol are still outside GST, distorting input pricing.
• Compliance burden – Multiple monthly and quarterly returns to be filed with extensive data. Complex procedures for invoicing, reporting and reconciliations.

Stability in terms of rates and procedures is needed to enable businesses to streamline operations. Extensive awareness programs explaining GST aspects can also help reduce confusion.

Challenges for Chartered Accountants

Chartered Accountants play a crucial role in assisting businesses with GST compliance. But CAs also face key challenges:

• Full digitization – GST envisages online registration, return filing,payments. CAs used to offline processes struggle to adapt.
• Procedural Knowledge – Keeping updated on invoice formats, debit/credit notes rules, reverse charge, e-way bill etc. is difficult.
• Data reconciliation – Reconciling books of accounts, 2A data, purchases, sales & ITC for clients every return cycle becomes strenuous.
• Multiple returns – Helping clients with timely compliance across 3B, GSTR-1, CMP-08 etc. returns is challenging.

Robust IT infrastructure and extensive GST training programs for CAs can help overcome teething issues in assisting taxpayer compliance.

Recommendations to Fix GST Issues

Some measures that can help fix many of the problems seen with GST include:

• Improve GSTN robustness and simplify compliance procedures
• Mandate e-invoicing integration with GSTN to curb fake billing
• Increase taxpayer outreach programs to improve voluntary compliance
• Bring petrol/diesel under GST to streamline tax structure
• Tweak GST rates into 3 slabs to reduce complexity
• Increase tax official training to improve

FAQs

Q. What is the standard GST rate in India?

The standard GST rate in India is 28%. This is among the highest in the world. Only Chile has a higher standard rate of 29%.

Q. Are petrol and diesel included under GST?

No, petrol, diesel, natural gas, aviation turbine fuel and alcohol for human consumption are still outside the GST tax bracket. Bringing them under GST can significantly streamline taxation on these products.

Q. How many GST returns need to be filed in a year?

Based on business type, up to 37 GST returns may need to be filed in one year, including monthly, quarterly and annual returns.

Q. What is TCS under GST?

TCS or Tax Collected at Source refers to up to 1% tax collected by e-commerce operators or suppliers from their vendors/sellers and paid to the government on their behalf.

Q. What is meant by GST revenue shortfall?

The difference between the assured compensation amount to states by Centre at 14% yoy revenue growth, and the actual GST collections is known as the GST revenue shortfall.

Q. Who develops the GSTN network?

GSTN or GST Network is the IT infrastructure providing registration, return filing, tax payments and other technology services. GSTN is owned by Centre and states and was developed by Infosys.

Q. How is GST revenue shared between Centre and states?

CGST portion of GST revenue goes fully to Centre, SGST portion to states. Of IGST revenue, generally Centre gets 50% and states get 50% share.

Conclusion

Four years since starting its GST journey, India still has some distance to go in realizing the full potential of this tax reform. The technology infrastructure and compliance mechanisms need further stabilization. Procedures should be simplified and clarity improved to ease taxpayer difficulties.

Addressing the key ongoing challenges with focused action in critical areas can help realize the intended benefits of increased tax compliance, economic growth, transparent taxation and “one nation, one tax”. The GST Council must continue to proactively engage with stakeholders to quickly resolve issues and bottlenecks.

As India’s most comprehensive indirect tax reform, GST has set the stage for a globally competitive tax regime. But the positive impact can only be achieved through collaborative efforts between government, industry, chartered accountants and taxpayers to smooth out implementation wrinkles. With time and constant fine-tuning, India’s GST will start yielding the desired dividends.