GST: Challenges & Drawbacks| Part 2
In our previous blog, we discussed about GST’s Structure and Merit, this blog deals with Challenges and Drawback associated with it. The path for GST is not that smooth and it has following challenges at its credit from auto sector.
The Model GST law invests the powers for rejection of the transaction value in very wide spectrum, and could lead to significant valuation disputes. More clarity is needed in the conceptual framework for job work which is treated as a service. Under the Model GST law, the definition of ‘capital goods’ covers only those goods which are used at the place of business of supply of goods. This could possibly result in increase in the cost of tooling and the cost for manufacture.
Under the Model GST Law, receipt of advance is sought to be treated as a taxable event. Thus the change in the timing of supply would result in significant changes in the cash flow, and also procedural changes for manufacturers and dealers. There is no clarity as to whether the cesses levied under different legislations (for specified purposes) will be subsumed into GST or would continue under the GST scenario.
It appears that even under GST, restrictions on input tax credit will continue. Unless there is a compensation mechanism to the States or to the OEMs with regard to the impact on the IPS due to GST, the effect on project viability for some of the mega automobile projects would be severe. Stock in the hands of dealer on the transition date are at possible risk of double taxation. Under GST, the free services/ warranties would also be eligible for taxation. The issue of whether Dealer Incentives Scheme would impact the price and credits, or will these be kept out of GST (in the VAT chain), needs to be addressed.
The SMEs had to take the brunt of GST implementation and had to pay excise duty as the turnover limit has reduced to INR 20 lakhs from INR 1.50 crore. The small businesses need to hire professional experts to comply with the new tax system. While this will benefit the professionals, the small businesses will have to bear the additional costs of hiring experts.
ERPs too need to be changed, which further increases additional cost. For many sectors, the tax burden has only increased which will result in increased price of final goods. Registration in multiple states increases the burden of compliances. E-commerce facilitators are now required to collect TCS under GST which will lead to increased complications and compliances. Composition scheme of many service providers and online sellers is in haze making it a serious drawback.
Petroleum products are not part of GST yet and there is no deadline on the horizon. GST is implemented after three months of new financial year hence businesses will end up running both tax systems in parallel, resulting in more confusion and compliance issues. India still does not have concrete anti-inflationary measures to curb the inflation that is an inevitable outcome of GST.