Challenges that Businesses need to Overcome under GST regime
Goods and Services Tax (GST) was imposed by the Government of India on 29 March 2017. In books, it’s called major tax reform since Independence. One Hundred and First Amendment was made in the Constitution of India to impose the new tax system. GST became effective from 1 July 2017. Like any other new system, GST also has challenges for tax professionals, small businesses and large scale enterprises. Here are challenges that businesses need to to overcome under GST regime.
- Sudden need for new accounting software
Businesses and tax professionals use ERPs or accounting software to file tax returns. The old software have facilities to calculate excise, VAT and Service Tax. Now with the implementation of GST, there require new software. Businesses either need to upgrade the old software program or buy completely new one. Human Resources accountable for filing taxes also need training for use of new software that is GST compliant.
All businesses and service providers require to issue GST compliant invoices which will carry all details like GSTIN, place of supply, HSN code etc. as made mandatory by the law.
- Increase in working cost
Often small businesses do not employ tax professionals. They calculate and pay taxes to government as per income tax rule and file return by self. However, with the new system, many small business owners and service providers found themselves incapable in calculating and filing return. With no choices left, they will need to hire accounting professionals. This is a major challenge for the business not making good profit. As hiring a professional need investment in terms or salary or fees whatever you call it.
- Working with computers
There are more 50% business owners even in major cities as well who do not know how to work with computers. In towns and small villages this number is more than 90%. Filing return that follow GST compliance is mandatory and procedure is fully online. Concept of Digital India looks good on billboards and social media but huge portion of Indian population is not tech savvy. Computers are still no less than magic for many. How these small business owners can sustain in truly not so digitized economy?
The function of GST is to tax every business equally in equal proportion. However, the present GST structure has multiple tax slabs. In true sense applying multiple tax slabs is not going to be easy for many businesses.
- Manufacturing SMEs have high tax burden
The SMEs and manufacturing sector have tough time in GST regime. Now any business making a turnover of Rs. 20 lakh or more require to pay excise tax. Before this limit was Rs. 1.50 crores. However, there is a clauses which entitles SMEs making turnover of up to Rs. 75 lakhs to chose for the composition scheme and pay only 1% tax on turnover in lieu of GST, in such case a business won’t be eligible to claim any input tax credit.
- Increased compliance as more number of returns to be filed annually
Now businesses need to file multiple returns over the year. In most cases, a business need to file an average 37 returns for assessees, this could be more depending on business model. Customers shall require to make sure timely compliance to ensure no loss of input credit. This will raise need for correct data to file accurate returns.
What do you think is your unique challenge? Do write in the comments section & we would be happy to answer.