Core Demand of the Question
- Mention the major compliance challenges of GST under the current regime.
- Suggest measures to simplify and streamline GST in India.
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Answer
Introduction
GST was launched in India in 2017 with the promise of creating a unified and simplified indirect taxation system. However, due to the federal compromise and complex compliance structures, it has become increasingly intricate, especially for multi-state businesses.
Compliance Challenges under the Current GST Regime
- Fragmented Registration Requirements: Businesses must obtain separate GSTINs in each state/UT they operate, which complicates administration.
- Cumbersome Return Filing Procedures: Monthly and annual GST returns involve extensive reconciliations and technical issues.
- Complexity in IGST Settlement and Revenue Allocation: Discrepancies in IGST distribution among states cause financial and coordination issues.
Eg: Between April–July 2024, ₹10,659 crore was over-allocated to some states, prompting formation of a central-state committee to rectify the IGST mechanism.
- Digital Divide and E-invoicing Challenges: Mandatory e-invoicing for B2B transactions above ₹5 crore creates hurdles for smaller firms with limited digital infrastructure.
Eg: The move to make e-invoicing universal is underway, aiming to replace e-way bills but may challenge businesses with lower digital maturity.
- Lack of Uniform Single Tax Identifier: Absence of a unified GSTIN increases duplication of efforts and administrative load.
Eg: Current system lacks a PAN-integrated single GSTIN, unlike the UAE where a single VAT number covers all emirates.
- Procedural Complexity Retained from VAT Era: Though laws are uniform, procedural burdens such as multi-state filings and decentralized compliance persist.
Measures to Simplify and Streamline GST
- Introduction of PAN 2.0 for Unified Tax Identity: A single PAN-based GSTIN for all-India operations can reduce redundancy.
Eg: PAN 2.0 will modernize taxpayer identification and can back-end allocate taxes using e-invoicing and supply rules.
- Backend Revenue Allocation through Technology: Leverage real-time e-invoicing data to auto-allocate taxes between Centre and states.
- Eliminating State-wise Return Requirements: Enable a central filing system for businesses operating in multiple states.
Eg: Like the UAE’s VAT model, India could move towards a unified filing process without jurisdiction-specific compliance.
- Streamlining E-invoicing and Removing E-way Bills: Universalize e-invoicing to automate compliance and eliminate redundant documentation.
- Establishing a Unified Compliance Portal: Integrate PAN, GSTIN, and tax return services on a single digital platform.
Eg: A unified portal under PAN 2.0 would enable single-window compliance across tax services and reduce duplicity.
- Rationalization of Tax Slabs and Rates: Simplify GST rates to reduce disputes, classification confusion, and litigation.
Eg: Multiple rates currently create classification issues rationalizing to 2–3 slabs may improve clarity and ease of doing business.
Conclusion
While GST has unified India’s indirect tax system, its complexity continues to challenge businesses. Simplifying compliance through technology, streamlined processes, and global best practices can reduce administrative burdens. A more efficient GST regime will boost ease of doing business and support economic growth.
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