While looking at GST from outside it seems that by amalgamating several taxes levied at the central and state government levels, a free movement of the goods would be facilitated by tax escalation. However this is not happening as expected. Due to the system of multiple registrations and several payment requirements, along with the application of IGST on self-supplied goods, GST has emerged to be having major setbacks which is contributing to the failure in its implementation at different levels.
Major drawbacks of GST
Since the implementation of GST, it has been clear to almost everyone that SMEs have suffered the most due to the sudden changes in tax collection as compared to the medium and large business companies. The government has argued that GST can facilitate free movement of goods across different states. However from several data collected after conducting researches it has been found that SMEs sell most of their products within their own state to various traders who then distribute it to other states. Thus on this account, GST again failed to be beneficial to small companies.
According to the law which implements GST, if GST is mentioned in any invoice it has to be deposited in a GST account. It also mentions that GST must be filed before the 20th day of each month. In order to understand lets take an example- if an invoice is raised in the month of June, the GST needs to be deposited in the GST account, and return must be filed before the 20th of July, even if the invoice has not been cleared by the customer. Thus, a person who has billed a customer with 10 lakh in June, he is bound to pay INR 1.8 lakhs as GST in order to file the return. If they fail to pay this amount, a penalty of 18% per annum is levied on the individual. This system of tax payment is a huge stress to SMEs, since they have to use their own sources to deposit the GST payment for all of their invoices including the ones whose payment has yet not been cleared by the customers.
The next big issue that SMEs face is the chain system of tax returns. In order to ensure that after submitting GST returns, an SME needs to make sure that their vendor files GST returns on time. If the vendor does not file tax returns, then it becomes impossible for the SME to claim back the amount which has been paid to the vendor. This chain system has emerged as an extremely complicated method, since it penalises even the individuals who want to comply with all legal norms due to the carelessness of other vendors in the chain.
To sum it all, it can be said that although GST implementation has several advantages, it is slowly killing SMEs. Thus it is the need of the hour to address the growing concerns of SMEs to ensure that the small business owners can retain their business.