GST tax system will replace most of the indirect taxes in India from July 1st 2017. This will have a lot of benefits like easy to understand tax regimes, less paperwork, less cascade effect etc. But GST will be the largest change in the tax regimes in history of India, this is why it will comes with some severe challenges as well. The challenges due to GST on business operations are:-
Various challenges due to GST:
- Various changes needed in business processes -The GST is not merely a tax change but a business reform that will affect the entire spectrum of business activity, right from procurement, manufacturing, and distribution to the pricing of goods and the IT system. Therefore, companies will need to incur significant business process re-engineering. This means they will have to reorganize their businesses in accordance with the new law, examine each business activity and conduct an impact analysis on their business, which might be a daunting task for small firms and involve high one-time administrative costs.
- Record keeping and Data handling – Once the GST is rolled out, a large amount of businesses’ tax compliance will go online. This necessitates firms to upgrade their online tax compliance systems as well as staff skills. The government has launched the GST Portal – a dedicated portal for assistance with GST enrolment, GST registration, and the filing of returns. Compliance in GST required you to keep and upload detail of all invoice on monthly basis. You will also have to download and verify all your purchase transaction. Apart from these you have to maintain records of advances, debit note, credit note, sales return, purchase return, stock transfer, payments and other transaction. Maintaining records of various transaction type and that too on large numbers
- Huge compliance requirement- with the implementation of GST filing returns will become take more effort than it did before. Before returns have to be filed every quarterly or even half yearly but with the implementation of GST you have to file 3 returns per month plus 1 return yearly i.e. a total of 37 returns per year for a organization which is doing its business in 10 states this 37 will become 370, this is a huge number of returns to be filed and will need a proper system or will become troublesome for the organization.
- Input tax credit challenges- Input tax credit is really important for every organization and after implementation of GST this will become more stringent as not following proper guidelines that are provided by GST council can result in loss of Input tax credit. GST council have almost 10 rules and organizations have to comply to all of them if they want proper input tax credit, ensuring each time that if you have complied with each rule or not will take a lot of time for the organization and will also be troublesome.
- Training employees to follow guidelines of new tax structure – The GST is fundamentally different from the existing tax structure. It will be essential for businesses to provide adequate training to their staff and clients on the new tax concept, legislation, and procedural aspects like enrolling and uploading returns online, so that they are well prepared for compliance deadlines.
So is it all bad news that GST is being implemented?
The answer is no. Yes GST will come with various challenges as mentioned above but once business get used to it there are a lot of benefit from GST as well like, A single tax regime will bring predictability and lower operating costs for businesses because the GST will reduce the overall tax burden by reducing the impacts of cascading taxes and allow the cross-utilization of tax credits across the supply chain. Hence its just a matter of time that GST will do more good than harm.