GST is one of the greatest tax reforms in the indirect tax structure of India. It is a a single, unified indirect tax levied on the supply of goods or services. Both Centre and States levy GST concurrently.
The main objective behind levying GST is to consolidate multiple indirect tax levies into a single tax. Thus, GST subsumes a host of taxes. It overcomes limitations of the previous indirect tax structure and brings efficiency in the administration of tax.
However, the tax came with its share of downsides despite the above GST benefits. There are certain disadvantages of GST that make this tax challenging to implement. So, let’s try to understand the downsides of implementing this indirect tax.
1. Compliance Under GST Very High
When the Goods and Services tax was first introduced, businesses had to file multiple returns. For instance, the initial return filing under GST demanded a taxpayer to file three returns every month. This included filing GSTR 1, GSTR 2 and GSTR 3.
Such a procedure was implemented to roll out a matching concept for claiming input tax credit (ITC). But due to technical glitches, the GST Council allowed the industry to file an interim summary return in Form GSTR 3B. Such a return enabled the taxpayers to report their total tax liabilities and avail tax credits. No invoice level information was required for this form.
However, taxpayers still had to go through an unnerving experience with regards to online compliance for GST Returns. Therefore, to simplify the tax returns, the GST Council suspended the initial procedure of filing three monthly returns. Instead, it demanded filing of GSTR 1 and GSTR 3B only.
But to consolidate the periodical returns and simply return filing additionally, the GST Council approved a new return design in its 27th Meeting.
Under the new procedure to file GST returns, the taxpayers would have to file only one monthly return. This return will contain two tables. One for reporting outward supplies. And one for availing input tax credit based on invoices uploaded by the supplier. Moreover, the proposed structure would allow the suppliers to upload the invoices on real time basis. Such invoices can be viewed and locked by the buyer for availing input tax credit. And reconciliation of invoices with that of buyers would take place offline. With its implementation still due, it would be appropriate to wait and see how the new return filing system under GST would reduce compliance.
2. Challenging for Smaller Businesses to Adapt to the Online System Under GST
3. Increased Cost for Businesses
Since GST has altered the way in which the tax is paid, small businesses will certainly feel its impact. Initially, three returns had to be filed every month. This called for a lot of work and understanding of multiple forms which required the small business owner to hire tax professionals. Although the ongoing return filing under GST calls for filing of GSTR – 1 and GSTR -3B only, it still needs small businesses to seek help of professionals. Also, larger companies had to undertake changes in there accounting softwares to be GST compliant and train employees to get used to the changes. This further added to the cost.
4. Hurried Implementation of GST Lead to Confusion Among Professionals and Businesses
GST was introduced on July 1, 2017, in the middle of the financial year 2017. This created difficulty on the part of businesses to shift to a new tax regime immediately.
Following tax rules of the previous regime for the first quarter of 2017 and adhering to newly introduced GST for the remaining quarters created compliance issues.
5. Instead of Single or Dual Rate GST System, There are Standard Tax Rates and Multiple Rates of CESS
Instead of a more simplified tax structure, the GST Council rolled out GST in India with five standard rates. This, according to many economists, makes the structure complex instead of simplifying it.
Given multiple states in India, each had its own issues with regards to GST rates. Each wanted lower rates to be implemented for particular goods they produced. This made the GST Council resort to implementing multiple tax rates under GST.
Also, GST was first introduced with a tax rate as high as 28%. Although, the GST Council has been continuously reducing rates and most items of daily use now fall in 0% to 5% tax bracket.