Challenges Ahead
No exemptions:
At present, the threshold for VAT registration is ` 20 lakh turnover; for excise duty, it is ` 1.5 crore turnover; and for service tax, it is ` 10 lakh turnover. These will not be available under GST – the threshold for exemption is ` 10 lakh for north-east and ` 20 lakh for other states.
Auditing of accounts:
Budget 2016/17 increased the turnover threshold for calculating presumptive tax from ` 1.5 crore to ` 2 crore. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the tedious job of maintaining books of account. This benefit may go away. The GST law makes it mandatory for MSMEs to get their accounts audited.
Spike in compliance cost:
Under GST, each entity will have to file three monthly returns and an annual return. In all, an assessee operating from one state will have to file 37 returns in a year. If the operations are from multiple locations, the compliance burden will grow immensely. Besides, they will have to upload every invoice raised on the GSTN platform.
Getting IT- enabled:
Returns will have to be filed online. Many MSMEs are used to filing manual returns. MSMEs will have to upgrade their IT infrastructure and spend on enterprise resource planning (ERP) and other software.
Cash flow problems:
Input credit will not be available unless all the entities involved in the supply chain have paid their taxes. Besides, all the taxes paid have to be matched correctly. Any non-compliance or error can delay the refund, creating cash flow problems.
Loss of business for non- compliance:
Under the GST regime, a buyer shall not be entitled to claim input tax credit unless the tax charged in respect of such supply has been paid by the seller as well. Apart from this, ratings will be assigned to each registered entity based on compliance. Big businesses would like to work with suppliers or vendors with a good compliance record. This could mean loss of business for many smaller players struggling to comply with GST rules.