The post-GST era has so far witnessed exporter numerous strikes, error and mismatch in returns filed as well as the World Bank calling GST a very complex Taxation system. But, several months ago, on July 1st, 2017, India as a nation had taken a giant leap towards a new order in its Taxation History. GST was touted as India’s second tryst with destiny. However, more than 8 months down the line and after multiple policy updates, it seems that not everything has unfolded as planned. This was, however, a possibility and the Government was prepared to incur short-term losses in exchange for large future gains. GST in India not only boasts of one of the highest tax rates but also consists of the largest number of tax slabs. Add to this the growing compliance burdens, technical as well as compliance issues.
Among Asian countries, India has the highest standard GST rate. On the planet, it is second only to Chile. The non-zero rated products ( 5, 12, 18 and 28 percent) combined with the remaining zero-rated products and the 3 percent GST rated Gold are a sharp deviation from the one Nation one GST Tax dream. Petroleum products, power, and real estate are still outside the GST ambit. GST is still in its teething period and has entered its second fiscal year on April 1st. In this blog, we try to throw light on the issues that currently plague the newly levied GST taxation system in India as well as the taxpayer’s grievances.
Some Pertinent Issues for Small Traders
GST implies additional operational costs for Small businesses. In a developing country like ours, not all SMEs will be able to afford the cost of computers and accountants required to implement GST (make bills and file tax returns). 28% GST rate on some products like plywood, automobile parts and electronic items forces potential buyers to opt for unregistered dealers.
It is too difficult to assign MRP to handmade products like local shoes, Banarasi Sarees, etc. Most small artisans are illiterate and therefore unable to write MRP on their products and/or do any paperwork. Dealers are confused how to rates of such products.
Small businesses that have a small turnover and need not pay GST face trust issues. Buyers demand bills from even those sellers who are exempted from GST. Without proof of certificate of GST exemption, small shop owners find themselves stranded and immobile.
Issues for E-commerce Companies
E-commerce giants like Flipkart, Amazon also have not escaped the aftereffects of GST rollout. TCS has to be collected by the e-commerce companies from the sellers at the time of payment.
The capital blockage will hamper day to day operational cost due to TCS provisions. The GST council has fixed the 1 percent TCS over the deduction made while payment to the sellers.
E-way Bill and Interstate Trade
E-way bill had the potential to liberate interstate trade from all sorts of obstructions. The excitement could be felt among the slightly nervous business community. But on the day when the Finance Budget 2018 was being introduced to the Lower House, the lethargic GST network turned to be a major spoilsport and February 1 turned out to be a watershed moment for the upbeat government. The inability of the network to handle large volume e-way bill requests was at the forefront of public jokes and disappointment. Immediately e-way bill was rolled back. In the aftermath of the failure, goods carrying vehicles were left stranded and highways enjoyed pin drop silence for a few hours. The crumbling GST network has been in the spotlight from the very beginning and it continues to garner unwanted criticism and public grievances.
The GST Council need to find permanent scalable solutions rather than interim ones like the GSTR-3B. The sloppy GSTN Network raises serious concerns over the Government’s claim of a digital powered economy. GSTN is managed by Infosys, a premier IT services company. The e-way bill network was managed by the venerated NIC.
The GST E-way bill is a major concern for most of the companies which are regularly into the business of transporting goods and sending material over the locations, the transport company is also trying to figure out how it would deal with the GST E-way bill provisions. As soon the bill expires the transport company or the trucker himself has to generate the GST E-way bill on his own. The GST Council must have taken all these concerns into strict consideration and ensured easy and simple e-way bill generation procedure which has been effective from April 1, 2018
The consistent policy rollbacks and amendments, powered by the glitchy GSTN Network, have enabled massive tax evasion. The benevolent composition scheme, as well as windows for filing quarterly returns, raise concerns about the intention and execution prowess of the government at the centre. The increased pool of registered taxpayers has had little but no impact on Revenue generation. Only 70% of taxpayers file returns regularly. A major headache is, however, the mismatch between initial and final returns filed by taxpayers. There is an estimated mismatch of Rs 34,000 crore tax liabilities reported in GSTR-1 and GSTR-3B. The present GST structure has no mechanism for checking discrepancies found between GST Returns for July-Dec and Final Returns. About 84 % of the taxpayers were unable to correctly report revenue statements. The discrepancies and e-way bill failure demand that the GST Council now needs to take rigorous measures to tackle the menace of tax evasion through under-invoicing.
GST and Fiscal Fractures
The GST revenue shortfall promises large dents in the Centre and states’ fiscal applecart. The Center and State budgets will be pegged down by the gap in Tax revenue. The common man will find himself on the receiving end if such gap in revenue continues. To bring states on the same wavelength and approve GST, the government had offered state compensations to the tune of Rs 60,000 crore for July to March in FY18. In order to stay true to its pre-GST promises, it is estimated the Central Government will have to make payment to the tune of Rs 90,000 crore further in FY19.
Understandably, the Budget 2018 unleashed record taxation of over Rs 90,000 crore in the form of capital gains tax, increase in customs duty, cess and surcharge. The fall in revenue has further made states apprehensive about bringing petroleum products and real estate under the GST ambit.
Adapting to IT Ecosystem is Hard
Indian economy is majorly driven by small business units i.e SMEs. It will be unfair to expect small-scale business firms to make the transition to an online IT platform and expect no errors in return filing. It is an uphill task for the majority of our working population which has little hands-on experience with IT solutions. The cost of SRP deployment is a major concern for micro-small-medium scale enterprises.
10 Burning Issues under GST
1. The September 2018 GST Return
The return in which effect of any changes in respect to earlier financial year can be taken till return of September 2018, Specially the Invoice wise ITC details if any. Also the ITC credit if any unclaimed or claimed in excess needs to be claimed or reversed as may apply. This is absolutely wrong provision, time should be given till the date of filing of Annual return i.,e Dec 2018 to corrects all mistakes.
2. The Annual GST Return
The Return format have been made available but the utility for the same is not available, though the due date to file the return is 31st Dec 2018. Further Annual Returns do not provide complete solution for all problems like Invoice Addition, modification, etc. The due date clashes with MVAT Audit Report due date i.,e Jan 2019, hence date needs to be extended well in advance or again extension of date issues may arise like of Income Tax audit due date.
3. GSTR 2A
GSTR-2A is available on the portal on monthly basis. Annual 2A cannot be downloaded. This has increased the difficulty to match the Books of Accounts with 2A. This has increased boredom as same thing needs to done monthly.
4. Reversal of Credit
The credit claimed wrongfully or unintentionally needs to reversed. In addition, the credit taken on purchases, where payment has not been made to suppliers within 180 days also needs to be reversed. Keeping a track of this is the real big burning issue.
5. Extra Tax payment in Cash Ledger!
Arjuna, GST was new for everyone and now books have been closed. Some people have paid taxes in excess of required amount. However, there is no option correct the challan paid and issues arise in refund claim of the same.
6. Composition Scheme- purchase reporting
In GSTR 4 in Sept 2018 qtr, the composition dealers needs to provide Details of Purchases made during the period. It is also one of the issues, as composition dealer is not allowed to take the credit of Input tax credit so keeping the detailed record of the same is tiresome.
7. Issues of GSTR 3B
Amendment to this return is not available. If any change needs to be made then, one needs to wait for the next return or annual return. Thereby increasing the interest day by day if any liability arises due to such rectification.
8. Issues of GSTR 1
Amendment to GSTR-1 is allowed in other period GSTR-1. But it is interesting to note once amendment is done the same invoice, credit note/debit note or B2C sales made cannot be amended again. That is to say only one chance is available to make amendment.
9. Taxation of Agricultural Commission agent and Joint Development Agreement
Recently clarification were issued in this relation, A big issue is for commission agents of Agricultural produce, Tax needs to be paid on commission in relation to taxable goods but where the product is NIL rated, and its commission won’t be taxable. Taxation of JDA for builders and Landlord is a burning issue.
10. Trans 1 issues
Trans 1 notice in Form 603 is now send by Department in large. This is going to create harassment to genuine tax payer, as all records which available with dept are again asked for. Further VAT credit as per revised returns needs to be allowed, a unnecessary harassment is done in such cases of Trans1 litigating it. Various High courts’ order has compelled to allow Trans1 uploading or credits were hardship to taxpayer had happened. This, trend is disturbing, Sue motto department should allow to correct errors or omissions.
For a frictionless and less burdened GST, the government is looking to shore up revenues to the tune of Rs 1 lakh crore per month. It would be interesting to see if the Government still has the courage to take stern measures against tax evaders and other business firms involved in anti-profiteering activities. The GST was projected as India’s second tryst with destiny. However, the financial budget of 2018 has thrown a wide plethora of taxes at the Indians to gobble up. Increased taxation it seems is the only way of generating operational revenues for a complex system like GST in the nonlinear Indian Demographics.