GST – Challenges

Why in news?

At its twelfth meeting on 17^th March, 2017, the GST Council cleared all the requisite State and Central-level legislative measures to implement the indirect tax regime.

What is GST?

• GST is one indirect tax for the whole nation, which will make India one unified common market.
• It is a single tax on the supply of goods and services, right from the manufacturer to the consumer.
• The GST is administered & governed by GST Council and it's Chairman is Union Finance Minister of India.

What are the major challenges?

• Industry needs at least three months to prepare for the GST once it sees the fine print.
• The fitment of thousands of commodities and services into the five GST rate slabs (zero, 5%, 12%, 18% and 28%) could be the trickiest for the GST Council.
• The rate fitment process is more susceptible to lobbying not just from different sections of industry, but also States that would like a favourable tax treatment for products and services they excel in.
• For instance, beedis have been kept out of the cess net altogether in order to avoid friction with States.
• Giving lakhs of enterprises just about two months to switch to the GST regime could lead to a messy start.

What are the problems faced by SMEs?

• Of the estimated 8 million registered businesses under the VAT regime, around 90% are Small and medium enterprises.
• But, SMEs appear to be the weakest link in corporate India’s efforts to be GST-compliant by the July 1, 2017.
• While large companies have experts to help them transition to the GST regime, SMEs are still struggling to assess the impact on their businesses.
• Less than 10% of SMEs are GST-ready. And, only 50% of SMEs have IT systems robust enough to comply with the requirements of the GST.
• So, apart from the need to invest in IT systems, the challenge is that they do not have the manpower to follow up with their vendors or suppliers and the means to ensure payment of the tax by them.
• To prepare for these technology-driven changes in the business environment, SMEs have to first automate their business processes and accounting systems.
• Working capital requirements are likely to undergo a change too. For some cash-strapped SMEs, this could result in higher borrowing to ensure that the input credit chain is not disturbed.

What is the problem of Input Tax Credit?

• Input Tax Credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs.
• Under the GST, the buyer of a good or service is totally dependent on the seller for any input tax credit.
• The tax credit available to a buyer is dependent on the return furnished, tax collected and deposited by the seller in the course of a sale transaction.
• There are provisions in the GST law that mandate input tax credit will be available to a buyer only if the supplier has paid tax within a given time-frame.
• Each invoice for a business transaction is registered with the GST Network and matched for compliance against tax and input credit claims.
• Businesses need to review their purchase and expense portfolios and ensure that their suppliers are compliant and capable of uploading their invoices so that they can avail the input credit.
• Any break in the tax chain will mean non-availability of input tax credit for all the players involved.

Source: Business Standard