The Micro, Small and Medium Enterprises (MSMEs) plays a vital role in the development of the Indian economy and are known as the growth engine. The sector contributes significantly to the industrial production, employment and exports of the country. The MSME has to perform many functions in their day-to-day business working; one of the vital roles is to stay compliant with Goods and Service Tax (GST)
The Indian government on July 1st 2017, introduced the GST to simplify the existing tax system in the country. The Indian government termed this reform as the game-changer for the country's economy as it has abolished various indirect tax system in the country. Though the tax structure has tried to solve significant issues relating to the taxing in India, the SMEs, MSME face many challenges in filing the GST return.
Mentioned below are a few of the challenges of the GST faced by the MSMEs.
HSN reporting is a hurdle- The reporting of Harmonized System of Nomenclature (HSN), which is an internationally accepted coding system is complicated. Involvement of HSN at every stage makes the process of invoice generation and return filing more cumbersome. Also, the reporting of HSN code is time taking, requires an ample of time and considerable effort for filling the GST. Overall in the longer term, not aligning the order of business with the GST regime could have a multifold impact on the market.
The Reconciliation under GST is about matching the data filled by the supplier with those of the recipients. The process is not a new as some part of this was earlier present during VAT regime too.
Now, the main hurdle faced by the business owners in GST Compliance is that the Invoice number / Invoice amount / Tax Rate / Tax Amount that the purchaser has recorded does not match with seller's invoice received in GSTR 2A. This issue invites a hefty penalty and makes things even more problematic. One more common challenge in developing a reconciliation process is that both parties involved may have different terminology of storing the invoice numbers.
Offences and penalties under GST
GST has too many penalties and offences under it, which makes it problematic for the taxpayers to file it. The GST law has clearly defined descriptions of these. If a taxpayer does not file any GST return, then subsequent returns cannot be submitted. For example, if GSTR-2 return of August is not filed later, the next return GSTR-3 cannot be filled. The GST law also talks about arresting a person by CGST/SGST officer if the person has committed certain offences under GST. This feature of GST filing makes it a difficult subject.
GST has loopholes in bringing items under its ambit
The new tax reforms do not include all the items under its purview, i.e. GST is on apply on such products. There are many products and services which should be brought under the ambit of GST. The step will boost other sectors like the manufacturing sector. There is no official data available to show how many indirect taxes got subsumed under GST.
GST has No helpline number
There is no helpline number available for a person to help in a case if he is stuck somewhere in the process of filing GST. The absence of a helpline number makes the GST filing difficult and time-taking.
Refund takes time
During the implementation of GST, it was assured that 90% of the GST refunds would happen within seven days. But it did not occur. The recent unearthing of fake invoices and fraudulent practices to corner input tax credit may only lead to more scrutiny and more delays. This results in human interfaces, which may lead to the involvement of corruption and a challenge.
In spite of these challenges, there are few of the solutions to overcome the difficulties. The market has a wide range of accounting software which makes GST filing easy and hassle-free. The software are designed with algorithms that identify errors on each step of the GST filing process to make it hassle-free. The accounting solution performs all the accounting related tasks for a business digitally. Apart from this, the Indian Government is taking steps to simplify the GST filing hassle-free.
To conclude, though GST has several challenges, in longer terms, the tax reform has a bright future in India. The tax reform is still a work in process, and MSME plays a vital role in the development of the country.
By Rajesh Gupta, Co-founder & Director, BUSY (Accounting Software)