Goods and Services Tax (GST) is an indirect tax introduced in India in 2017. The main goal of the GST was to simplify the way taxes are collected and paid on goods and services across the country.
The government faced many challenges while introducing GST in India, including complexity, lack of clarity, unreliable IT infrastructure, high compliance costs, and limited scope.
So, why the GST has not been as successful in India. And what are the potential improvements that could make the GST the best tax structure?
Why GST is not suitable in India?
Despite its potential benefits, the GST has faced several challenges in India that have made it less suitable for the country.
The following are the main reasons why the GST is not suitable for India:
1. Complexity
The GST system in India is relatively complex, with multiple tax rates and rules that can be difficult for businesses to navigate. This complexity can create compliance issues.
Besides, it’ll increase the cost of doing business, as now they may need to seek the help of tax professionals to understand and comply with the GST rules.
2. Lack of clarity
There is often a lack of clarity around the rules and regulations related to the GST, which can lead to confusion and uncertainty for businesses.
3. IT infrastructure
The GST system in India relies heavily on IT infrastructure, which can be unreliable and prone to technical issues.
This can create problems for businesses that need to file their GST returns or access important information online.
4. High compliance costs
The GST system can be resource-intensive for businesses, as they are required to maintain detailed records, file returns, and pay taxes on a regular basis.
This can create a burden on businesses, especially small and medium enterprises, which may not have the resources to comply with the GST rules.
5. Limited scope
The GST system in India currently only covers goods and services and does not include important sectors such as real estate, electricity, and alcohol. This can create inequities and distort the tax system.
6. Inflation
Inflation, in simple words, is that stage in an economy when things start getting more expensive.
Some tax experts believe that the GST has contributed to inflation in India by increasing the price of goods and services.
The GST is a value-added tax that is levied on the supply of goods and services, and this increase in the price of goods and services may be passed on to the consumer in the form of higher prices.
7. Lack of transparency
There have been concerns about the lack of transparency in the GST system, particularly with regard to the allocation of GST revenues between the central and state governments.
This lack of transparency can make it difficult for businesses and individuals to understand how GST revenues are being used and can lead to mistrust in the tax system.
8. Administrative burden (burden from government side)
The GST system requires businesses to maintain detailed records and file regular returns, which can be burdensome and time-consuming.
This can be especially challenging for small and medium enterprises, which may not have the resources to devote to compliance with the GST rules.
9. Tax evasion
Under the GST system, there have been many cases of tax evasion, where businesses didn’t pay GST.
In simple words, “tax evasion” means avoiding the liability of paying GST by wrongful means. Tax evasion can create unfair competition and reduce revenues for the government.
10. Exemptions in GST
In India, certain goods and services are exempt from GST, which means they are not subject to GST. These exemptions are generally granted to goods and services that are considered essential or necessary, such as food, medicine, and education.
Such exemptions can create unfairness and disturb the tax system. For example, essential goods such as food and medicine are taxed at a lower rate, while luxury goods and services are taxed at a higher rate.
This can create inequality in the tax burden and may not be fair for all businesses and consumers.
11. Complex refund process
The process of getting a GST refund can be complicated and take a long time, which can be hard for businesses that are due a refund.
This can cause delays and money problems for businesses, especially small and medium-sized ones that may need the refund to meet other financial obligations.
Suggestions to make GST the best Tax Structure
Despite these challenges, there are several improvements that could be made to the GST system in India to make it more suitable for the country.
Some of these improvements include:
- Simplification of the GST system: The GST system could be simplified by reducing the number of tax rates and streamlining the compliance process. This would make it easier for businesses to understand and comply with the GST rules.
- More clarity in laws: The rules and regulations related to the GST should be clearly defined and easily accessible to businesses. This would help reduce confusion and uncertainty and make it easier for businesses to comply with the GST system.
- IT infrastructure: The IT infrastructure supporting the GST system in India should be improved to ensure it is reliable and able to handle the demands of the system. This would make it easier for businesses to file their returns without much hassle.
- Reduced compliance costs: The compliance costs associated with the GST system could be reduced by simplifying the rules and reducing the burden on businesses. This would make it easier for businesses, particularly small and medium enterprises, to comply with the GST system.
- Expanded scope: The GST system could be expanded to cover sectors such as real estate, electricity, and alcohol that are currently not covered. This would create a more comprehensive tax system and reduce inequalities.
- Improved refund process: The process for obtaining a refund of GST could be streamlined and made more efficient to reduce delays and challenges for businesses that are entitled to a refund.
That’s not it. There are still many different ways in which the Indian government could improve the GST system to make it more effective and efficient.
However, it is up to the government and related authorities to take action to improve the GST now in order to improve the future.
Frequently Asked Questions about GST:
The Goods and Services Tax (GST) is a comprehensive indirect tax that has been implemented in India to replace a number of indirect taxes that were previously levied by the central and state governments.
The following are some of the frequently asked questions about the Goods and Services Tax (GST) on the internet:
-
What is GST? Explain in a few words.
Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services. It is collected at every stage of the supply chain, from the manufacturer to the retailer, and is paid by the final consumer.
-
What are the 3 types of GST?
GST is a tax that is levied on the purchase price of goods and services.It is collected by the government. There are three types of GST:
1. Central GST (CGST): This is a tax collected by the central government on the supply of goods and services within a state.
2. State GST (SGST): This is a tax collected by the state government on the supply of goods and services within a state.
3. Integrated GST (IGST): This is a tax collected by the central government on the supply of goods and services between different states in India. -
Who is the Father of GST in India?
The former Prime Minister of India, Atal Bihari Vajpayee, is often referred to as the “Father of GST” in India. It was during his tenure as Prime Minister that the GST was first proposed, and efforts were made to bring about its implementation.
-
Who has to pay GST in India?
In India, GST is paid by the final consumer of goods and services. It is collected at every stage of the supply chain, from the manufacturer to the retailer, and is paid by the final consumer.
GST: The foundation of a solid tax structure
No doubt, GST is a game-changer in Indian tax history. However, the government needs to fix the flaws in the system to make it future-proof. If the government is successful, it will help boost government revenues while also contributing to overall economic development.
