Challenges in implementation of GST, Problems to Implement GST

Challenges in implementation of GST (Goods and Service Tax). Goods and Services Tax (GST) one of the most ambitious tax reforms, undertaken by the Government, is all set to be implemented from July 1, 2017. GST will usher India into an era of One Tax, One Market and One Nation, thereby exerting a positive impact on the GDP and increasing the size of formal economy in the Country.

Integrating all taxes levied on goods and services in a federal country with clear cut distribution of legislative powers, like India, is undoubtedly, a mammoth task. Introduction of GST requires extensive amendments in the Constitution of India and consensus between Central and States Governments on variety of issues like GST rates, basic threshold, exemptions, administration etc. Now check more details about “Challenges in implementation of GST” from below…

Challenges in implementation of GST

The significant challenges in implementation of a harmonized and Integrated GST are as follows: Most concerns expressed about the implementation of GST can broadly be divided into three categories –

  • Design issues
  • Operational issues
  • Infrastructure issues.

Amendment of Constitution

At present, the States do not have the powers to levy tax on supply of services and the Centre does not have the power to levy tax on the intra-State sale of goods. The UPA Government introduced the Constitution (115th) Amendment Bill, 2011 for GST on 22.03.2011, but it could not be passed and ultimately lapsed with the dissolution of the 15th Lok Sabha. Thereafter, the NDA Government presented Constitution (122nd) Amendment Bill, 2014 for GST in Lok Sabha on 19th December, 2014. Th e Lok Sabha has passed the bill in May, 2015. [The salient features of the Bill are discussed in para 8 below].

The Constitution will be amended when this Bill gets passed by 2/3rd majority in Rajya Sabha too and thereafter gets ratified by at least 50% of the State Legislatures and finally gets the assent of the President of India. Once the Constitution is amended, Central GST law will be introduced and passed in Parliament and State GST Laws will be passed in respective States; and then the GST will be implemented in India.

Basic design issues:

Though the broad design of the GST is firmed up, specific issues like threshold limits for goods and services, exemptions, definition of supply, determining the place of supply of goods and services, transition provisions for existing exemptions etc. need to be carefully identified, analysed and appropriately addressed

IT Infrastructure:

The process of tracking interState transactions will be extremely complex and will require an infallible IT system. The clearinghouse mechanism envisaged in the dual model GST will handle humungous data. Designing and developing an IT infrastructure of such a size and complexity will be a herculean task. For this purpose, a Special Purpose Vehicle (SPV) called the Goods and Service Tax Network (GSTN) has been set up by the Government to create enabling environment for smooth introduction of GST

Tax administration:

The Central Board of Excise and Customs (CBEC) and the State tax administrations will be responsible for implementing CGST and SGST respectively. For implementing dual GST, a robust and integrated tax administration will be required to efficiently track flow of goods and services across the country as also precisely account for the associated taxes. Any sort of risk management system will give meaningful results only when there will be an efficient tax administration. An inefficient tax administration will not be able to provide the necessary level of deterrence which may ultimately lead to non-compliance and under performance of the tax regime. It may be noted that the Joint Committee on Business Process for GST released four reports on GST Payment Process, GST Registration, GST Refund and GST Return for public comments last year.

Revenue Neutral Rate (RNR):

At present States are charging VAT @ 0%, 1%, 5%, 12.5%/13.5% and 20% besides other levies. Similarly, Centre is charging central excise duty @ 12.5%, CST @ 2%, service tax @ 14%. RNR rates are a point of debate and will be one of the final issues for consensus between the Empowered Committee and the Centre. Revenue neutral rate (RNR) basically means the rate which preserves revenue at desired (current) levels. World over, the average GST/VAT rate is around 16.4%. The average rate in Asia-Pacific is 9.88% and Canada and Nigeria have the lowest rate of 5%. Recently, a panel under Chief Economic Adviser, Arvind Subramanian, constituted by the Government to decide on goods and services tax (GST) rates, has recommended a revenue-neutral rate of 15-15.5%, with a standard rate of 17-18% which will be levied on most goods and all services.

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