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significance and challenges of GST in India

GST stands for Goods and Services Tax, launched on July 1, 2017, India’s largest tax reforms since Independence. This replaced more than a dozen central and state levies such as excise duty, service tax, octroi etc. (The previous system of indirect taxation was called Value Added Tax). It is widely considered one of the most important economic reforms for India in recent times. Hence undoubtedly it has numerous benefits but it also has its fair share of challenges. So here is a list of some of the prominent pros and cons of this new system of taxation:

Benefits of GST:

  1. Compliance

One of the impacts of GST is that it has improved compliance by subsuming multiple taxes into a single tax structure and helped the government to gain the trust of small businesses, which in turn increased their confidence in getting registered on the GST network.

  1. Automation and digitalisation

Thanks to GST, the nation is transitioning to an automated indirect tax ecosystem, with a focus on electronic compliance and e-invoices generation.

  1. Boost to interstate trade

In the pre-GST regime, the movement of goods from one state to another was a highly problematic and cumbersome process. Different rates of tax in different states were responsible for this. The imposition of a uniform tax regime across the country has made it easier for businesses to move their goods from one state to another without any difficulty. Hence with GST it is easier for consumers and business owners to assess things like GST on mobile or clothes etc. and whether GST is applicable on products or not.

  1. Cooperative Federalism

The GST Council is a body consisting of the Union Finance Minister, the Union Minister of State for Finance and the state finance ministers/finance ministers. The council’s decisions are taken based on consensus. The council provides decision-making autonomy to all states. So far, there has been no instance, when any state has expressed its reservation on the decisions taken by the council.

Challenges of GST

  1. Difficult refund process

Exporters are facing significant refund delays, which has become a major reason of worry to the export community. The singular drawback in the present GST refund system is the manual approvals involved in the process which not only leads to delay but also creates opportunities for mistakes and fraud. However, there were some changes recently made by the Government for the processing and handling of refunds to exporters which will aid every sector of exports under this act.

  1. Decrease in revenue for the government

Due to large-scale non-compliance and non-filing of GST returns, low GST revenue collections have been a challenge.

  1. Non-compensation of Losses

Manufacturing States were unhappy that they were not compensated for their revenue losses due to the implementation of GST. Thus, states like West Bengal did not implement the e-way bill mechanism which is an electronic mode for recording the movement of goods above Rs 50,000 in value.

  1. A lot of amendments

The rollout of the goods and services tax (GST) has been a challenging one. The GST law was amended more than 100 times over the last three years. There have been multiple policy changes in the GST law, which may have confused taxpayers and tax administrators alike.

The government has issued more than one thousand notices, circulars, instructions, and orders till now. This led to the implementation of a system that is complex and cumbersome for taxpayers to comply with. There is confusion around the most fundamental of things like how to download GST certificate or the prominent things like correct process of invoicing. You can visit Khatabook to understand these processes better.


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