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Challenges in Implementation of GST

The Modified Value Added Tax (MODVAT) was adopted in 1986 during Rajiv Gandhi's government, and it marked the beginning of India's indirect tax reform. Following this, Prime Minister Manmohan Singh launched state-level discussions on a Value Added Tax (VAT). Finally, in 1999, Prime Minister Atal Bihari Vajpayee and his economic advisory group advocated a single "Goods and Services Tax (GST)," following which a separate committee was formed to establish a GST model. GST was ultimately established on July 1, 2017, after 17 years of heroic effort by several political leaders, senior officers, tax specialists, and other stakeholders.

France was the first country to apply the GST in 1954, and since then, more than 160 countries have embraced the system in various versions. Canada, Vietnam, Australia, Singapore, the United Kingdom, Monaco, Spain, Italy, Nigeria, Brazil, and South Korea are among the countries that have enacted a GST.

Concept:
The Goods and Services Tax (GST) is a national indirect tax system that applies to the manufacture, sale, and consumption of goods and services. It is a tax on the value-added of goods and services at each stage of the manufacturing process. It operates as a continuous chain of set-off benefits from the manufacturer to the seller, with the final burden falling on the consumer.

GST In India

GST replaced many taxes and levies in India, including the central excise duty, services tax, additional customs duty, surcharges, state-level value-added tax, and the Octroi, resulting in a comprehensive tax. It's also multi-staged, with restrictions placed at each level of the manufacturing process or "value addition." However, it is repaid to all parties involved in the various phases of manufacturing, so the final consumer bears the burden of GST, making it a destination-based tax.

The GST system is based on a similar premise to the VAT system. Instead of allowing a set-off for taxes paid at a prior level, GST would only charge it at the point of sale. Before the GST, every buyer, including the final consumer, had to pay tax on tax. The cascading effect of taxes is the name given to this tax on tax. Because the tax is assessed only on the value-addition at each stage of the transfer of ownership, the cascading effect has been eliminated.

Model
India has selected a dual GST arrangement, meaning that the tax is managed by both the federal and state governments. As a result, there are two parts to GST: the Central Goods and Service Tax and the State Goods and Service Tax.

The Central Government levies the Central GST (CGST) and the State governments levy the State GST (SGST) on transactions within a single state. The Central Government levies Integrated GST (IGST) on interstate transactions. GST is a consumption-based tax, which means that taxes are paid to the state where the goods or services are consumed rather than the state where they were manufactured.

The IGST makes taxes collection more difficult for states since it prevents them from collecting taxes owed to them directly from the Centre. A state was obligated to engage with only one government to collect tax money under the prior system.

Applicability 
Except for exempted commodities that fall outside its ambit, GST applies to all goods and services sold or provided in India. It is imposed on all sales, transfers, purchases, barter, leases, and imports of products and/or services. To levy GST, there is no distinction between goods and services.

Payment and Input Tax Credit

The central and state levels of GST are charged and paid separately. The Input Tax Credit provision is offered at the federal level for Central GST; however, the ITC for Central GST cannot be used to offset State GST and vice versa.

Rates
The rates charged are consistent throughout all states and the federal government, as are the regulations, definitions, and classifications. The GST council, a centrally empowered body comprised of state delegates and led by the union finance minister, sets the rates. This council ensures that the ratio of revenue receipts to corresponding sales (tax bases) does not fall for both the federal and state governments, i.e., GST rates are revenue neutral.

Initially, GST had merged the indirect central and state taxes into a four-tier schedule of 5, 12, 18 and 28 per cent. The necessity goods were taxed at 5 per cent and luxury and consumer durable goods at 28 per cent, most goods and all services were taxed at the standard rates of either 12 or 28 per cent. The slab rates have been revised to 0, 5, 12, 18 and 28 per cent. 

Objective
National Democratic Alliance and United Progressive Alliance (UPA) have listed the following objectives of GST:
  1. Enhance the growth and reduce inflation
  2. Shift the tax burden from producer and supplier to the final consumer
  3. Integrate the national market
  4. Improve tax compliance
  5. Mitigate the cascading effect of taxation
  6. Make a simpler and more transparent tax system
  7. A Benefit to both taxpayers and tax administrators
  8. Benefit for both centre and the state in terms of revenue

Challenges in Implementation of GST

The tax collection equations have considerably changed since the adoption of major tax reform in the indirect taxation system, namely the introduction of GST. GST has simplified India's indirect tax structure by replacing several tax systems with a single unified tax, but its implementation has been hampered by a slew of factors. A few of them are 

Extensive Training for tax Administration Staff
Because GST is a relatively new idea in the country, it was necessary to adequately train the whole tax administration workforce, from state to central government, in terms of the concept, legislation, and procedures to be implemented under this new tax regime. As a result, the activities of various banks and other organisations have been disrupted, and they have yet to fully grasp GST.

High Compliance Cost
An assessee is obliged to file as many as 37 returns per year under GST rules, consisting of three monthly filings and one yearly return. In comparison to the former taxes system, which had 13 returns, this is roughly double. Furthermore, for those who operate in many states, the number of returns that must be filled will increase accordingly. This results in a huge increase in compliance, logistics, and other costs.

The GST law also requires all service providers to register in each state where their services are provided. Separate billing systems, evaluations, and input credit for each site is a difficult task in and of itself. Because of the complicated structure of particular industries, such heightened compliances make separate registration for them an added bother in complying with the law.

A Regressive Tax
GST is a regressive tax since it has a greater impact on low-income earners, i.e., it consumes a greater proportion of their income than those with a higher income. This is because the GST tax base is expenditure rather than income. As a result, everyone who buys or uses products or services is required to pay GST. The majority of the country's population is poor and lower middle class, who consume these goods and services regularly, putting them at risk of being hit by the GST.

Multiple Tax Rates
The GST was created to make the tax system easier to understand. As a result, a single tax rate appears to be reasonable, and it has been applied in several countries. India, on the other hand, has opted for a dual GST arrangement, with multiple tax bands of 5%, 13%, 18%, and 28%. The self-objective of GST tax structure simplification is being challenged by these various tax rates.

Negative effect on Service Sector
The majority of the service industry is now taxed at 18 per cent after the implementation of GST. This is a higher rate than the former rates, which included the cess. As a result, it indirectly increases the spending of a big population of end consumers since sectors with a wide consumer base dispersed across the country, such as telecommunications, tend to raise their prices.

Loss of revenue to some states
GST stands for Goods and Services Tax, which is a consumption-based destination tax. This means that the tax will be collected in the state where the consumption occurs. It is a boon to consuming states, as manufacturing states do not pay their fair share of taxes. The Compensation Act was enacted to address this issue, yet it has only added to the complexity of calculating compensation.

Robust IT Network
Another problem in adopting GST is maintaining a stable IT network capable of facilitating GST operations by real-time integration of state governments, commerce and industry, and other stakeholders.

GSTN was formed specifically for this reason. The Goods and Services Tax Network (GSTN) is an information technology network that offers computing resources to power the GST system's whole tax collecting and filing mechanism. It serves as a conduit between taxpayers and the government, integrating state and federal governments for taxes reasons and assisting both the federal and state governments in keeping track of all corporate financial transactions.

The GSTN software is the backbone of the entire GST taxation system and must withstand the test of time, as all registered persons are required to file their returns monthly, putting the systems under strain.

Migration Challenges
The migration procedure is an added activity that necessitates additional people and costs. Businesses must guarantee that not only themselves but also their vendors are registered on the GST network after the implementation of GST. Dealing with non-registered vendors can increase the compliance burden, affect the ability to claim ITC, and hurt on compliance ratings, so ensuring migration is critical. Many businesses have had to rewrite and standardise long-term client contracts as part of the GST transition.

The biggest issue with GST adoption is that businesses have to completely overhaul their tax and IT infrastructure to comply with the law. Second, banks must handle the full major work of internet transactions, which they were not adequately equipped for. CBIC also had a huge integration assignment for the event to go well.

Anti Profiteering Authority 
The anti-profiteering clauses set other practical challenges. As per the clause, businesses have to pass tax cuts on their customer.
This authority is in charge of ensuring that the lower tax rates resulting from the GST implementation are reflected in lower prices. While this helps the government to keep track of various commodities pricing, it also interferes with the free market's determination of prices based on demand and supply.

Because the price of a thing or service is determined by several factors, and the costs of these factors fluctuate, it can be difficult to determine if a reduction in tax rates has resulted in a decrease in commodity prices. Another issue is that corporations may conspire to fix pricing; nevertheless, the Indian Competition Commission has the authority to interfere and levy penalties.

Challenges for SMEs
GST has significantly increased the dependence on the IT interface. The taxation system has become easier but the complete taxation process from invoicing to tax payment has shifted online. While larger organisations are better equipped to adapt to this change, most of small and medium enterprises are not necessarily technically savvy to do so and are still struggling.

One of the key worries that have prompted them to be wary of the Goods and Services Tax is a reduction in duty limits. A manufacturer with gross revenue of less than Rs 1.50 crores paid no duty under the previous excise tax scheme. However, with the adoption of GST, the exemption amount was reduced to Rs 20 lakhs. As a result, a substantial number of SMEs and start-ups are now subject to the GST tax.

Status of Implementation Of GST
Composition system for small businessmen, under which those with a turnover of up to Rs. 1.5 crore pay tax ranging from 1% to 5% of their turnover, and for service providers, where those with a turnover of up to Rs. 50 lakhs pay a tax equal to 6% of their turnover. Returns must be filed once a year, with payments made quarterly.

The GST Council also allowed taxpayers to migrate from previous tax regimes to the new GST regime. The deadlines for submitting returns such as GSTR-3B and GSTR-1 for newly migrated taxpayers were pushed from July to December and extended until March 31.

The most recent return filing procedure necessitates the submission of a single monthly return form. Returns must be filed quarterly by small taxpayers with annual revenue of less than Rs. 5 crores.

As the tax base grows and revenues stabilise, the GST rate structure is being continually rationalised. Only about 200 items now fall under the 28 per cent threshold, most of them are luxury or sin goods.

Agriculture, education, social security, construction, tourism, transportation, banking, government services, and other kinds of services have all received relief from GST taxation.

To stimulate the MSME sector, the composition system for service providers was implemented. Persons with an annual turnover of up to Rs.50 lakh are eligible to participate in this scheme and pay 6% GST, but no input tax.

Conclusion
India has witnessed one of the greatest indirect tax reforms since independence with the implementation of the Goods and Services Tax. It has been almost three years since GST was launched in the country. As it redefined indirect taxation by subsuming almost all the indirect taxes, it has unified the nation under a single tax umbrella of GST. The successful merger of a comprehensive set of indirect taxes was a challenging task in itself. As discussed earlier, the path to successful implementation is characterised by several roadblocks.

However, the CBIC has been making an incessant effort to rectify the different pitfalls that waylay its complete successful implementation. In the grand scheme of things, GST has had a good impact on various sectors, including the government, manufacturers, dealers, and ordinary citizens, and has assisted the country in aligning itself with the global taxation system.

GST is essentially an Indian business reform, and it has both advantages and disadvantages. Some products and services are less expensive, while others are more expensive. Some industries may profit at the expense of others. However, these losses/negative impacts are only projected to endure a short time and may bear fruit in the long run, assuming that the system is well-supported by the public and that the responsible authorities continue to develop it.

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