Although the objective of launching the GST regime was to simplify the tax structure, it comes with several challenges, especially for the business sector. Some of the obvious roadblocks include a change in business software, compliance burden, rise in operating costs, Goods and Service Tax return filing and more.
Top 7 challenges businesses must overcome in the new tax regime
- Change in business software
Previously, businesses filed tax returns through their accounting software, which incorporated VAT, excise, and service taxes. With the new tax system rolling out, businesses need to either upgrade or buy GST-compliant software.
However, purchasing new software requires additional funds and resources. Therefore, businesses need to settle for software available at affordable prices, which helps smooth the transition to GST.
- Goods and Service Tax compliance
Businesses in India are still not completely aware of the nuances of the new tax regime, GST. A clear understanding of minute details will help them file returns timely and issue GST-compliant invoices.
Additionally, the digitisation of the traditional tax system is a massive change that is challenging for existing businesses. As per the law, invoices must be GST-compliant, including details like GSTIN, supply details, HSN code, etc. To overcome this problem, one must use several web applications that generate invoices.
- Increase in operating costs
During the traditional tax regime, businessowners paid taxes on their own without seeking help from tax professionals. However, with the launch of GST, businesses must come on board with new procedures and professional help.
Therefore, hiring experts and training existing employees can become expensive, especially for small businesses. As a solution, they can secure a high-value business loan from reputed lenders to meet their requirements.
- Online procedure
Small business owners are yet to get accustomed to the digital record-keeping process of Goods and Service Tax. In the new regime, one must obtain GST compliance, file returns, and make payments online only.
Because of the lack of technology skills, small businesses face complications while adjusting to the new system. In addition, they do not possess enough funds to hire manpower or train existing employees regarding the GST process. Nevertheless, they can get sufficient cash by securing a business loan from reputed lending institutions that offer a sizeable loan amount along with pre-approved offers. All you need to do is enter your name and phone number to check your pre-approved offers.
- Increased tax burden for manufacturing businesses
The GST turnover limit for manufacturing sectors has been reduced to Rs.20 lakh compared to Rs.1.50 crore under the excise laws. Due to this reduction, manufacturing SME’s tax burden has increased.
However, there are advantages and disadvantages of GST concerning this sector. For example, manufacturing businesses with a turnover of up to Rs.75 lakh can choose a composition scheme, pay only 1% tax on the turnover amount, and enjoy fewer compliances. That said, by opting for this scheme, businesses cancel out the chances of receiving any input tax credit. Therefore, businessowners need to choose between a composition scheme or paying higher taxes.
- Business disruption
Due to the complex GST filing process and invoicing, businesses nationwide face huge challenges. Along with the positive impact of GST, there are a number of scenarios where the new tax regime has failed to streamline the system.
Further, several unorganised sectors are protesting against the Goods and Service Tax regime, disrupting their business flow. However, with time, businesses will get on board with the new system and overcome the challenges.
- Abrupt policy change
The Government of India rolled out GST overnight, pushing existing businesses into confusion. Several small businesses failed to understand the new tax regime and ran both traditional and GST in parallel.
Therefore, this increased the scope of confusion and even resulted in compliance issues. However, this happened during the initial days of the tax reform. Currently, businesses are trying to learn more about the types of GST, its filing and invoicing process and more.
In addition, there is no clarity regarding the tax holidays in the Goods and Service Tax regime. Manufacturers like FMCG, textile and more, enjoy tax holidays and state benefits. However, there is no mention of these benefits in the new regime, which means the costs for these industries will also increase.