Challenges Faced Under GST
Increased operational expenses
- GST has changed the way tax is assessed, business owners require the opinion of the tax experts to remain GST-compliant.
- However, this has increased the operational expense of the entity as they are required to bear the extra cost of employing tax specialists or hiring consultants.
The increased tax burden on Small and Medium Enterprises (SME’s)
- Small and Medium businesses, particularly in the manufacturing sector have confronted various challenges under GST.
- Before the GST regime, business units having turnover up to INR 1.5 crore were required to pay the Customs Duty.
- But under GST any taxpayer whose turnover surpasses INR 40 lakhs needs to pay the tax. Nonetheless, SMEs with a turnover of up to 1.5 Crore INR can choose the composition scheme and pay tax on turnover instead of GST and enjoy lesser compliance
- However, the problem is that businesses who opt for a composition scheme will then not have the facility to claim any input tax credit (ITC).
Multiple registrations for Pan-India businesses
- Under the new regime, a business will have to register online for GST in every state involved in its sales process.
- If your business delivers goods across 5 states, then you’ll have to register for GST in those 5 states to carry out your business activities. Since the entire registration process takes place online, small business owners who are not used to working online might not find the transition easy.
Returns must be filed on a monthly basis
- Under GST, there will be around 36 returns in a fiscal year. GST returns will also require you to close your books on a monthly basis, which, will take a lot of time.
- Should you miss a single return, you’ll be penalized Rs.50/- a day and your compliance rating on the GSTN portal will be reduced.
- If GSTR 1 for a tax period not filed , he shall not be allowed to file succeeding month’s GSTR 1
Registration will be mandatory for e-commerce suppliers and operators
- Businesses carrying out activities related to e-commerce should register under GST irrespective of their annual turnover rate.
- Unlike other types of businesses, e-commerce firms will not be eligible for threshold exemptions or for the Composition Scheme (which allows firms to file their tax returns on a quarterly basis instead of 3 times a year and pay taxes at a much lower rate).
The ruthless reverse charge mechanism:
If a small businessman, is exempted from GST supplies to a GST registered entity, the buyer is liable to pay GST on such a purchase by self-invoicing and this invoice is to be uploaded at GSTN while filing returns. Such a cost is basically bad debt for the purchaser.
Most of the MSME’s are not able to make payment to the supplier within 180 days. Sometimes, even the contract provides more time for payment. However, GST law requires to reverse ITC along with interest, if not paid within 180 days.
Issues on ITC Mismatch:
|Invoice accounted for in books and the same is also appearing in GSTR-2B||Matched||ITC can be claimed subject to its eligibility as per GSTR-3B|
|Invoice is accounted for in the books but the same is NOT appearing in GSTR-2B||Books > GSTR-2B||ITC cannot be claimed as per GSTR-3B unless the same is reflected in GSTR-2B. Such ITC is parked in unreconciled ITC/ Deferred ITC, which will be tracked every month and the same will be claimed once it is reflected in GSTR-2B. An invoice-wise breakup of such unreconciled ITC is required for internal control to follow up with vendors and explain the department.|
|Invoice is NOT accounted for in the books but reflected in GSTR-2B that month||Books < GSTR-2B||ITC cannot be claimed as the invoice is not available. It can be claimed when it is accounted for in the books. An invoice wise breakup of such ITC is required for internal control to book transactions and explain the department.|
- Customers now shall need to pay more taxes on goods and services they purchase. A majority of essential consumables will input either the same or a higher amount of tax.
- Small-scale traders also have to bear the cost of compliance, which may raise the prices of their produce, affecting the consumer.