Challenges and Benefits of GST in India: A Year in Review

Introduction

The Goods and Services Tax (GST) is nearing the completion of its inaugural year in India. It is an honor that Assam was the first State to pass the GST Constitutional Amendment Bill on 12.08.2016 in its Legislative Assembly. The implementation of GST law took effect on 01.07.2017. remain significant.

Overview of GST Implementation

The implementation of GST shortly after the demonetization was a commendable achievement for the Central Government. Reflecting on the first year, it is evident that GST has benefited many sectors, even as others grapple with its complexities. Key challenges faced during GST's rollout include:

• Coordination between Central and State authorities and cooperation from State Finance/Taxation Departments.
• Development of the GST Common Portal within a limited timeframe.
• Raising public awareness about GST provisions through ordinances and Gazette notifications.
• Introducing GST after the first quarter of the financial year 2017-18 posed logistical questions.
• Providing adequate training for departmental officials on GST law and software.
• Rapid establishment of necessary infrastructure.
• Connectivity issues in remote areas affecting electricity and Internet access.
• Promoting GST awareness at numerous levels.

Initial Challenges Faced by Taxpayers

Following the implementation of GST, taxpayers encountered several significant issues:

• Malfunctioning and slow GST portal.
• High tax rates that were often seen as irrational.
• Reverse Charge Tax implications for purchases from unregistered suppliers.
• Technical problems with filing tax returns.
• Heavy penalties for delayed return submissions.
• The substantial compliance burden, requiring four tax returns per month.
• Managing accounts across three different tax categories.
• Complications for exempt industrial units regarding tax payments and refund claims.
• Ambiguity surrounding refunds of Integrated Goods and Services Tax (IGST) on exports.

In response, the Government promptly assessed the situation and took steps to resolve these issues, as is typical with the introduction of any new system.

Positive Impacts of GST

The GST law has initiated several significant benefits in India, such as:

• Elimination of check gates, facilitating the free movement of goods and saving time and resources.
• Reduced opportunities for corruption due to diminished human intervention in the online processing of GST.
• Fewer unannounced visits from tax officials on business premises.
• Creation of numerous job opportunities, particularly in accounting, aligning with the 'Skill India' mission.
• Enhanced technological engagement, with taxpayers utilizing computers for account-keeping, contributing to the growth of the IT sector and furthering the goals of a 'Digital India.'
• Emergence of new accounting firms and increased participation in GST matters from both new and seasoned professionals, supporting the 'Start-up India' initiative.
• Promotion of financial discipline among taxpayers, improving compliance and record-keeping.
• Streamlined tax collection processes leading to significant increases in GST revenue, surpassing one lakh crore.

Together, these changes have fostered a sense of awareness and responsibility among businesses and taxpayers.

Efforts to Simplify GST

Over time, the Government has been proactive in simplifying the GST framework. The GST Council has made several crucial decisions during its meetings, including:

• Reducing the frequency of tax returns from four to two (GSTR-3B and GSTR-1) and extending deadlines as necessary.
• Adjusting tax rates: items previously taxed at 28% have been reduced to 18%, 18% to 12%, and 12% to 5%, with some essential goods being exempted altogether.
• Postponing the Reverse Charge Mechanism under Section 9(4) until 30.06.2018.
• Reducing late fees for delayed tax return filings from Rs 200 per day to Rs 50 (or Rs 20 for small businesses).
• Pausing GST on advance receipts against goods sales to lessen administrative burdens.
• Exempting inter-state service providers from mandatory registration up to specified turnover limits.
• Establishing a grievance redressal mechanism and a self-service portal for taxpayer support.
• Increasing the threshold for composition dealers from Rs 50-75 lakhs to Rs 75 lakhs-1 crore.
• Streamlining the refund process and initiating bond/LUT-based exports without IGST payments.
• Allowing transporters the option to register under GST voluntarily.
• Implementing an E-way bill while making necessary amendments to enhance its practicality.

These steps demonstrate the Government's commitment to addressing the challenges faced by taxpayers and improving the GST framework.

Recommendations for Further Simplification

While substantial progress has been made, additional efforts are needed to further simplify GST. Suggested measures include:

1. Introducing a provision for filing revised GSTR-3B or adding a column for prior period adjustments to minimize mismatches.
2. Consolidating payments under one common cash ledger to allow for flexibility in liability adjustments.
3. Amending GST rules to ensure no interest is charged when an assessee offsets liability with cash ledger balances, even if post due date.
4. Redefining ‘Aggregate Turnover’ for registration purposes to exclude non-taxable and exempt turnover.
5. Limiting late fees to the tax liability amount.
6. Revising Composition Scheme provisions to allow inter-state sales and number of business possessions without restriction.
7. Introducing schemes to resolve disputes under earlier taxation laws.
8. Ensuring registration certificates reflect accurate liability dates and comprehensive details about the taxpayer’s business.
9. Centralizing the Advance Ruling Authority to standardize outcomes across states.
10. Clarifying laws to allow input tax credits for works contractors purchasing machinery requiring Motor Vehicle Act registration.

Conclusion

In summary, GST is poised to become the most significant tax reform of this decade, with the potential to dramatically enhance revenue generation in India. The Government’s focus on simplifying GST will be crucial for the success of this initiative, as the goal of 'One Nation-One Tax-One Market' draws closer to reality. It is essential to continue addressing compliance challenges to realize the full benefits of GST for the economy.