GST or the Goods and Services Tax is all set to roll out from July 1, 2017. Call it independent India’s biggest indirect tax reform or an economic gamechanger by the Modi government – the fact is that people will take some time to adjust to the concept of paying the new tax. Even as the common man tries to understand whether the net impact of GST will be positive or negative on the household budget, businesses are struggling to register and understand how tax returns will be filed – among a host of other things. We take a look at 5 possible challenges and short-term glitches that businesses and the economy will face as GST becomes a reality.
1. Transition from old to the new system: According to DK Srivastava, Chief Policy Advisor at EY India, traders and business owners will face issues on claiming input tax credit that has been paid under the old regime, in cases where goods have not been sold off. Additionally, earlier, certain goods and services were categorised under a different tax bracket. “With a multiple rate system, classification of goods and services can cause temporary confusion,” Srivastava tells FE Online.
2. Process of filing returns: Priyajit Ghosh, Partner, Indirect Tax at KPMG in India elaborates on the challenges. “Where the turnover is less than Rs 75 lakhs, such businesses have the option to pay tax under a simplified scheme (called composition) and have to submit a simplified quarterly return besides an annual return. However, they have to generate invoices with requisite particulars and many of them may not be in a position to comply with this requirement.” According to Ghosh, with electronic filing on the GST portal (GSTN) being the only option, suppliers will face a big challenge.
Additionally, for suppliers with turnover of over Rs 75 lakh, at least 37 returns will have to be filed. “First return of sales by the 10th of the next month, second return a prefilled one that is to be validated by 15th, final one by 20th and finally an annual one. The time gap of five days is likely to pose a challenge for a couple of months before they setup infrastructure for timely filing. Besides the return, such suppliers would be required to submit an annual audit report,” Ghosh explains.
Ghosh also foresees challenges in uploading invoice level details at the GSTN. “The challenge would also be around uploading invoice level details at the GSTN for all supplies made to the businesses, larger grocers selling to the smaller ones. Further, the online matching of credit, which is similar to the income tax deducted at source (26AS) in concept is likely to result into a reconciliation exercise unfamiliar to most of the taxpayers,” he says, adding that for all the pain, the long term impact would be beneficial for the economy as a whole.
3. Administration-related issues: Dr Arun Singh, Lead Economist at Dun & Bradstreet India is of the view that SMEs will face the maximum confusion over the new tax. Acknowledging that GST is a good reform that will have a transformational impact on the country’s growth, Singh tells FE Online, “It’s a new system and small businesses will face initial glitches, especially with regards to registration under GST.”
Agrees DK Srivastava of EY India, who says, “There are administration related issues such as registration formalities for the existing dealers particularly service providers and some dealers whose supplies are in more than one state.”
4. Price-impact related issues: From a consumption and production perspective, DK Srivastava sees a setback for the next two quarters. “The relative price of goods and services is changing and both consumers and producers are likely to hold back till more clarity sets in. This would impact the demand in the economy and hence the GDP growth for a short term period,” Srivastava feels.
5. Revenue generation related issues: Most studies believe that with the final GST rates, the government may end up losing out on some revenue, says EY India’s Srivastava. “The rates of goods and services have been decided and any revision would have to go through the GST Council. If the government realises that it is losing some revenue once GST fully comes in, it may tinker non-GST rates. If not that, it may be forced to reduce expenditure, which in turn would impact GDP growth adversely in the short-run,” he says.