India

The Challenges Of Implementing GST In India

We’ve been hearing about GST for a while now.  It is important that you know and understand the biggest economic change that India is going to witness with the advent of GST.

Goods and Service Tax or GST as it is popularly known as, is a tax that is set to replace all the indirect taxes that are in force like CST (Central Sales Tax), VAT (Value Added Tax), Service Tax etc.

Even though there is no doubt about the effectiveness of the GST bill, there are questions raised by economists and tax enthusiasts all over the country about the ease of implementation process of the GST.

This apprehension towards implementation is getting stronger by the day because of the visibility of the challenges in doing so.

The Challenges Of Implementing GST In India:

Take a look at some of the challenges ahead with regard to GST implementation.

  • Clubbing Taxes: The biggest challenge of GST implementation is bringing all the indirect taxes under one roof, which is the biggest feature of GST. There has been opposition asking to including purchase tax by a few states. Other states are reluctant about alcohol, tobacco products coming under GST. This is due to the fact that a major chunk of state revenue is derived from these products.
  • Statutory Requirements: As the imposition of GST will be delegated to both state and central government, the constitution has to grant powers to both through an amendment. It is seen as a difficult task as the law expects at least two-thirds majority from the members of the parliament and that isn’t easy given the current political scenario of the country.
  • Make-shift Arrangements: State governments are demanding compensation from the central government as they foresee a major dent in the revenue due to CST losses. This is asked for the first 5 years after the implementation of GST, for which the central government has agreed to 3 years. A final conclusion is yet to be drawn.
  • Framework For Tax Disputes: There has to be a uniform legal procedure for tax disputes and litigations to avoid any confusion.  
  • Defining Inter-State Transactions: With the transportation services available everywhere, the place of sale and consumption may not be the same. This makes it difficult to go forward with revenue allocation.  Hence, it becomes important to define procedures to tackle such problems.
  • Infrastructure For The Collection Process: Proper infrastructure has to be designed to track the movement of goods and services between states, collection and monitoring revenue, identify defaulters etc.
  • Determining GST Rates: This is a major step in ensuring the success of GST. Arriving at rates which are conducive to both the government and public is will be a daunting  task.

These are some of the major challenges in implementing GST in India. But many countries had to go through quite a few challenges similar to this before bringing in any major economical reform. Even with the presence of such challenges— it is important to get through with the GST bill— as the advantages hidden are a lot more than the challenges.