GST: Gateway to Hell

Since its introduction, the Goods and Services Tax (GST) has been hailed as a revolutionary tax reform in India. Promising to streamline taxation and eliminate the cascading effects of multiple levies, making taxation and movement of goods across states seamless and simple, GST was anticipated to usher in a new era of economic efficiency and transparency. However, for many businesses and taxpayers, this "gateway to heaven" has instead become a "gateway to hell," fraught with complexities, high cost of compliance , and unforeseen burdens.

?GST was designed to unify the fragmented tax structure, replacing a plethora of central and state taxes such as excise duty, service tax, VAT, and more. The idea was to create a single, comprehensive tax system that would make doing business easier, reduce tax evasion, and increase government revenue. Theoretically, a simplified tax system would lead to:

?1. Ease of Doing Business: By eliminating the need for businesses to navigate through multiple tax regimes.

2. Increased Compliance: With a transparent and straightforward tax structure.

3. Economic Growth: By reducing the overall tax burden and encouraging investment.

Despite these lofty promises, the implementation of GST has encountered numerous hurdles. Businesses, especially small and medium enterprises (SMEs), have borne the brunt of these challenges:

1. Complexity of Compliance: The multiplicity of GST rates (0%, 5%, 12%, 18%, and 28%) adds layers of complexity. Businesses need to classify their goods and services correctly to apply the appropriate rate, often requiring professional assistance.

??2. Technical Glitches: The GST Network (GSTN) portal, intended to be a one-stop solution for all GST-related activities, has been plagued with technical issues. Frequent downtimes, slow processing speeds, and errors have made filing returns a frustrating experience.

?3. Frequent Changes: The GST regime has seen numerous amendments and notifications, making it challenging for businesses to stay updated and compliant. This constant state of flux creates uncertainty and increases administrative burdens.

?4. Increased Costs: The compliance costs associated with GST, including accounting software, consultancy fees, and training for staff, have been significant. For many small businesses, these additional expenses have been difficult to manage.

?5. Cash Flow Issues: The process of claiming input tax credits (ITC) is cumbersome, leading to delays and impacting cash flows. Businesses often face a liquidity crunch while waiting for refunds.

?6. Penalties and Fines: Stringent penalties for non-compliance, even for inadvertent errors, have added to the stress. The fear of attracting fines has led to over-cautiousness and operational inefficiencies. Businesses are under constant fear of high penalties & fines.

The Human Cost

Beyond the technical and financial challenges, the human cost of GST has been profound. Business owners, accountants, and employees have found themselves under constant pressure to meet compliance requirements. The stress and anxiety associated with navigating the GST maze have taken a toll on mental health and productivity.

Few suggestions on The Way Forward

?While GST's objective of creating a unified tax structure remains laudable, its execution needs significant improvement. Here are some potential solutions to ease the burden:

?1. Simplification of Rates: Reducing the number of tax slabs and simplifying the classification process would alleviate much of the confusion and compliance burden.

?2. Stabilization of Policies: A more stable regulatory environment with fewer changes would help businesses plan better and reduce compliance costs.

?3. Improvement of GSTN Infrastructure: Investing in robust IT infrastructure to ensure the GSTN portal operates smoothly and efficiently.

?4. Education and Support: Providing better education and support to businesses, particularly SMEs, to help them understand and comply with GST requirements.

?5. Streamlined ITC Process: Simplifying the process for claiming input tax credits and ensuring timely refunds to improve cash flow for businesses.

Outside in view

Goods and Services Tax (GST) rates can vary significantly between countries, and comparing India’s GST rates with those of OECD countries can provide insights into tax policy differences. Here’s a general comparison:

?GST Rates in India

?India implemented GST in July 2017, replacing multiple indirect taxes with a single tax regime. The GST system in India is structured with different rates:

?1. 0%: Essential items like fresh fruits, vegetables, milk, and educational services.

2. 5%: Items of mass consumption like packaged food, footwear, and transport services.

3. 12%: Standard goods like cell phones, processed food, and some medicines.

4. 18%: Standard rate for most goods and services, including industrial intermediaries, consumer electronics, and restaurants.

5. 28%: Luxury items and demerit goods, such as cars, tobacco products, and high-end electronics.

? GST/VAT Rates in OECD Countries

OECD countries typically use Value Added Tax (VAT) or similar consumption taxes, which can be compared to India’s GST. The standard VAT rates in some OECD countries are as follows:

?1. Australia: 10%

2. Canada: 5% (federal) + provincial rates (0-10%)

3. France: 20%

4. Germany: 19%

5. United Kingdom: 20%

6. Japan: 10%

7. New Zealand: 15%

8. Sweden: 25%

9. Switzerland: 7.7%

10. Norway: 25%

?Takeaways

?1. Variation in Rates: GST/VAT rates vary widely. Scandinavian countries like Sweden and Norway have higher standard rates (25%), whereas Japan has a relatively lower rate (10%).

??2. Structure: While India has multiple GST slabs (0%, 5%, 12%, 18%, 28%), many OECD countries primarily use a single standard rate with a few exceptions for reduced rates (e.g., food, books, and medical supplies).

?3. Complexity: India’s multi-rate system is more complex compared to the generally simpler structures in many OECD countries, which often use one standard rate with a few lower rates.

?4. Revenue: Higher rates in some OECD countries contribute significantly to their government revenues, reflecting their reliance on consumption taxes.

?5. Social Policy: Lower rates or exemptions in India for essential items indicate a focus on social equity, which is also observed in OECD countries with reduced VAT rates for essential goods and services.

?These comparisons highlight the diverse approaches to consumption taxation globally, influenced by economic policies, social welfare considerations, and administrative simplicity.

?The introduction of GST was a bold and necessary reform for India's economy. However, its implementation has revealed significant flaws that need urgent attention. By addressing these challenges, the government can transform GST from a "gateway to hell" into the streamlined, efficient tax system it was always meant to be. Only then can the true potential of GST be realized, fostering economic growth and making India a more attractive destination for business and investment.

Disclaimer: The views expressed above are the personal views of the author and not of any organisation. This is not to criticise or insult any individual or authority but provide constructive feedback on GST in general.