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5 Major issues in Goods and Services Tax (GST)

Abhishek Raja , Last updated: 28 February 2024  
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The Goods and Services Tax (GST) was introduced in India on July 1, 2017, with the aim of simplifying the country's complex tax structure and creating a unified taxation system. However, since its implementation, the GST has faced several challenges, hindering its effectiveness and causing dissatisfaction among various stakeholders. In this article, we will explore five significant problems in GST system.

1. Multiple Tax Structure

One of the primary issues in GST is its multiple tax structure. The GST is supposed to streamline the tax system by subsuming various indirect taxes such as excise duty, service tax, and value-added tax (VAT) into a single tax. However, the multiple tax slabs, exemptions, and classifications have made the system intricate and difficult to understand for both taxpayers and businesses. The existence of multiple tax rates has also led to classification disputes and compliance challenges, increasing the administrative burden on businesses.

Multiple Tax Structure

5 Major issues in Goods and Services Tax (GST)

2. Compliance Burden

Compliance in GST regulations is another significant concern for businesses. The GST requires extensive documentation and reporting, including filing multiple returns every month. Small and medium-sized enterprises (SMEs) particularly struggle with compliance due to limited resources and expertise. The complex online portal for GST filing further adds to the compliance burden, leading to delays and errors in filing returns. The cumbersome compliance process not only increases the cost of doing business but also discourages voluntary compliance, leading to tax evasion.

Compliance Burden

3. Input Tax Credit (ITC) Challenges

The GST allows businesses to claim Input Tax Credit (ITC) for taxes paid on inputs used in the production of goods or services. However, the ITC mechanism has been marred by challenges such as mismatches in invoices, delays in invoice matching, and fraudulent claims.  challenges not only result in revenue leakages for the government but also create cash flow issues for businesses, especially in sectors with high working capital requirements. The complexity of the ITC provisions and frequent changes in compliance requirements further exacerbate the problem.

Input Tax Credit (ITC) Challenges

4. Inverse Tax Setup

Another issue plaguing in GST system is the inverted duty structure, where the tax rate on inputs is higher than the tax rate on the final product. This leads to accumulation of credits for businesses and increases their compliance costs. Industries such as textiles, renewable energy, and pharma are particularly affected by the inverted duty structure, as they face challenges in claiming refunds for accumulated credits. The inverted duty structure not only distorts input-output tax ratios but also hampers the competitiveness of domestic industries in the global market.

 

5. GST Network (GSTN) Issues

The GSTN, which serves as the technology backbone of the GST system, has faced numerous technical glitches and operational challenges since its launch. Issues such as system downtime, slow processing of returns, and data security concerns have hampered the smooth functioning of the GSTN portal. These technical challenges have resulted in difficulties for taxpayers in filing returns on time and accessing important documents. Moreover, the lack of a robust grievance redressal mechanism exacerbates the frustrations of taxpayers dealing with GSTN issues.

Functions of (GSTN)

Functions of GSTN

 

Conclusion

While the Goods and Services Tax (GST) was introduced with the promise of simplifying the tax system and fostering economic growth, it has faced several challenges since its implementation. The complex tax structure, compliance burden, input tax credit challenges, inverse tax setup, and GSTN issues are some of the key problems hindering the effectiveness of the GST system. Addressing these issues and implementing necessary reforms is crucial to realize the full potential of GST in driving economic growth and fostering compliance.


Published by

Abhishek Raja
(Practising CA)
Category GST   Report

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