GST Post Implementation Challenges on Compliance, Cash Flow, Returns

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GST Post Implementation Challenges: GST is basically an indirect tax that brings most of the taxes imposed on various goods and services at the point of manufacture, sale and consumption of goods and services under one umbrella at the National level. While in Pre GST Era, taxes were levied separately on Goods and Services.

Goods and Service Tax (GST) replaced all indirect taxes levied on goods and services by the Government, both Central and States. GST is one of the biggest Tax Reforms in India since its independence.There are the Challenges before all types of businesses across the country. Some of challenges are below :

GST Post Implementation Challenges

GST Post Implementation Challenges

i) Compliance : Filing timely GST returns is one of the biggest challenges before most of businesses. Especially, SMEs and Small traders are facing more problems due to sea changes in requirement of data and big gap between traditional record keeping to digital record keeping. Further, there is lack of awareness about data required for uploading returns. To overcome this challenge, one can really need to relook the present data and required data to be maintained for smooth filing of GST returns. While filing returns some times faces technical problems like GST portal is not functioning properly , updating records at very slow speed etc.

The government is considering a proposal to tweak the way people file their goods and services tax (GST) returns. The move, to customise the form as per the varying requirements of the taxpayer, is expected to significantly simplify the filing process.

The ultimate aim is that the small tax payers should be able to file the returns without much assistance from outside (Ref.: Economic Times of India as said by Ajay Bhushan Pandey, the newly-appointed chairman of the GST Network (GSTN) ).

ii) Cash Flow : Managing the Cash flow with sudden increase in the prevailing tax rate viz. Air compressor from 17.5% ( Excise + Vat ) to 28% under GST or particular group of commodities from prevailing rate 5% to 18% under GST would result in increased tax outgo leading to cash flow issues. Under GST, any branch transfer whether local or inter-state branch transfers would attract GST. Similarly, exporters will have to procure duty paid inputs and claim refund after exporting leading to cash blockage. Prior to GST, EPCG benefit was available for custom duty and CVD as well. But under GST, EPGC benefit is up to custom duty while IGST to be paid in cash, this will have a negative impact on the cash flow.The above concerns are addressed to GST Council by various Business Associations and Chamber of Commerce. Hoping that positive outcome will come out and it helps to ease the burden on cash flow.

iii) Higher Tax Burden for SMEs : Small businesses in the manufacturing sector will not have it easy in the GST regime. Under the excise laws, only manufacturing business with a turnover exceeding Rs. 1.50 crores had to pay excise duty. Whereas, under GST the turnover limit has been reduced to Rs. 20 lakh, thus increasing the tax burden for many manufacturing SMEs. However, SMEs with a turnover of upto 75 lakhs can opt for the composition scheme and pay only 1% tax on turnover in lieu of GST and enjoy lesser compliances. The main drawback is these businesses will then not be able to claim any input tax credit. The decision to choose between higher taxes or the composition scheme (and thereby no ITC) will be a tough one for many SMEs. Recently, GST Council has increased in limit for composition scheme from 75 lakhs to 1 core.

iv) Awareness : A large number of businesses are still not familiar fully with GST and lot of confusion regarding the concepts and requirements has created in initial days. Due to lack of clarity, some of large trades differs which not only created hurdle but also affected business at a large scale.

vi) Reverse Charge : In a normal course of business, Supplier has to pay tax on the Supply of goods or Service Provider has to pay on the services rendered. But in the reverse charge, recipient of goods or services or both is liable to pay GST. According to the Section 9(4)of Central Goods and Services Tax Act, if a purchase is made from an unregistered vendor, the liability to pay tax is transferred to the buyer. This provision largely affected to the small and unorganised sector, the most of registered businesses avoided purchases from them and its impacted negatively to small and unorganised sector. The GST council announced in its meeting which was convened on October 6 that the ‘Reverse Charge Mechanism’ was put on hold until March 31, 2018.

vii) IT Systems and Accounting Software : Suitable changes are required to be made in ERP system and also IT framework aligned with the new provisions, to enable generating various reports required for GST compliance. Main challenge is major changes /modifications of entire IT frame work which is in line with GST compatible. SMEs and unorganised sectors do not have adequate IT support and to adopt new system or do major changes in existing system leads to increase in maintaining cost of business. GST council is working on the simpler system for small traders and it helps to SMEs to make the compliance under GST more easier and hassle-free as well.

viii) Export : Major challenge before exporter is blocking of significant amount of working capital due to widen gap between date of export and time requires to get refund on taxes paid on inputs. Sometimes, refund get delayed due to strict compliance procedure and its’ affect on their business negatively.

Conclusion : GST council is working on the various challenges faced by the businesses since the implementation of GST and hoping that suitable solution / outcome will definitely come out and its’ helps to adoptability of GST at a large scale in businesses. Needless to say that, if GST is implemented efficiently & effectively, the growth boost get from internal movement of goods is going to be very high and which helps to achieve our desired Economic Growth !!!

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