]

DISSERTATION
ON

“BARRIERS IN IMPLEMENTATION OF GST”

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 List of contents

S. No Contents Pg
1 Title Page No.
2. Acknowledgement 1
3. Student Declaration
2
4. Research Guide Certificate
3
5. List of content
4
6. Introduction
5
Chapter 1 Introduction of the Study 6
1.1 Logic of the Study
6
1.2 Objective of study
7
Chapter 2 Literature Review
7-23
2.1 Review of Literature
24
Chapter 3 Research Gap Identification
24
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 Chapter 4 Research Methodology 25
Chapter 5 Data Analysis 25
Analysis and Interpretation 26
Chapter 6 Conclusion 26-28
Chapter 7 Suggestions &Recommendation 29
30-31
Solution Framework
Chapter 8 References
Chapter 9 Sources 32
33

CHAPTER-1
INTRODUCTION

GST (goods and service tax) is a comprehensive tax levy on manufacture, sale and consumption of goods
and service at a national level. ‘G’ – Goods ‘S’ – Services ‘T’ – Tax GST is a tax on goods and services
with value addition at each stage having comprehensive and continuous chain of set-of benefits from the
producer’s/ service provider’s point up to the retailer’s level where only the final consumer should bear the
tax.” Through a tax credit mechanism, GST is collected on value-added goods and services at each stage of
sale or purchase in the supply chain. GST is paid on the procurement of goods and services can be set off
against that payable on the supply of goods or services. But being the last person in the supply chain, the
end consumer has to bear this tax and so, in many respects, GST is like a last-point retail tax. France was
the first country to introduce GST in 1954. Worldwide, Almost 150 countries have introduced GST in one
or the other form since now. Most of the countries have a unified GST system. Brazil and Canada follow a
dual system vis-à-vis India is going to introduce. In China, GST applies only to goods and the provision of
repairs, replacement and processing services. Basically, GST is a value added tax, levied at all points in the
supply chain with credit allowed for any tax paid on inputs acquired for use in making the supply. It is
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indirect tax that brings most of the taxes imposed on most goods and services, on manufacture, sale and
consumption of goods and services, under a single domain at the national level. It would apply to both
goods and services in a comprehensive manner with exemptions restricted to a minimum and it is payable
at the final point of consumption.
Goods and Services Tax (GST) is an indirect tax levied in Indiaon the sale of goods and services.The tax
came into effect from July 1, 2017 through the implementation of one hundred and first amendment by the
Government of India. The tax replaced existing multiple cascading taxes levied by
the central and state governments. The tax rates, rules and regulations are governed by the Goods and
Services Tax Council which comprises finance ministers of centre and all the states. GST simplified a slew
of indirect taxes with a unified tax and is therefore expected to dramatically reshape the country's 2 trillion
dollar economy.

Logic of the study

As GST is implemented few months ago in India, According to scenario all around, it is found that GST has
not been implemented effectively. So, my research will consists in finding those barriers which makes
hurdels in Implementation of GST.

Objective of research-
 To Study Implementation of GST.
 GST Impact on Indian Economy
 To analyze the barriers in implementation in GST.

1. Implementation of GST

Indirect Tax Structure in India

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India currently has a dual system of taxation of goods and services, which is quite different from
dual GST. Taxes on goods are described as “VAT” at both Central and State level. It has adopted
value added tax principle with input tax credit mechanism for taxation of goods and services,
respectively, with limited cross-levy set-off. The present tax structure can best be described by the
following chart:

SHORTCOMINGS IN THE PRESENT STRUCTURE AND NEED OF GST

1. Tax Cascading: The most significant contributing factor to tax cascading is the partial
coverage by Central and State taxes. The exempt sectors are not allowed to claim any credit for
the Cenvat or the Service Tax paid on their inputs.
2. Levy of Excise Duty on manufacturing point : The CENVAT is levied on goods
manufactured or produced in India. Limiting the tax to the point of manufacturing is a severe
impediment to an efficient and neutral application of tax. Taxable event at manufacturing point
itself forms a narrow base. For example, valuation as per excise valuation rules of a product,

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 whose consumer price is Rs. 100/-, is, say, Rs. 70/-. In such a case, excise duty as per the
present provisions is payable only on Rs.70/-, and not on Rs.100/-.
3. Complexity in determining the nature of transaction – Sale vs. Service
4. Inability of States to levy tax on services : With no powers to levy tax on incomes or the
fastest growing components of consumer expenditures, the States have to rely almost
exclusively on compliance improvements or rate increases for any buoyancy in their own-
source revenues.
5. Fixation of situs – Local Sale vs. Central Sale
6. Interpretational Issues: whether an activity is sale or works contract; sale or service, is not
free from doubt in many cases.

Why in India, there was a need for GST?

Imposing several taxes on goods and services can lead to high cost and inefficient tax structure
which can subject to shirking and revenue disclosures. The need for GST in Indian Taxation
System will add value at each stage and will set off the rates both at state and at central level.
Introducing GST, will increase the efficiency of taxation, improves the economic growth and it
will bring whole nation to one national market.

What happen in present scenario? Our present taxation system is very complex and very confusing,
corruption chance is there, which leads to distrust of government, there are hidden tax for exports,
whereas no charge applicable on Importing of Goods/Services from one state to another.

Just to overcome these issues, Rajya Sabha introduced GST bill, which will bring transparency to
taxation and consumer will get to know how much tax amount they are paying to government for
sale/ purchase/ manufacturing.

Following are some of the points that can easily explain the need for GST:-

i. Tax Structure will be Simple: – At present, there are huge number of taxes that has to pay by
consumers, with GST it will single tax to pay, which is much easier to understand. For
businesses, accounting complexities will reduce and results less paperwork, which will save
both time and money. GST will increase economic GDP by 2%-2.5%.

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ii. Tax revenue will increase: Simple tax structure will bring more tax payers and in return it
will be revenue for government.

iii. Competitive pricing: What GST will do? Well, it will eliminate all other taxes of indirect
taxes and this will effectively mean that tax amount paid by end users (consumers) will reduce.
As in Economics, lower will the prices, more will be demand for that product, results in more
consumption of goods, which will be benefited to companies.

iv. Boost to exports: If Indian market will be competitive in pricing, then more and more foreign
players will try to enter the market, which results in more numbers of exporters and benefits to
Indian Market. As far there is no tax rate is finalized, but yes GST is much needed in the
countries where, it lacks transparency and complex taxation system.

IMPLEMENTATION

The reform process of India's indirect tax regime was started in 1986 by Sanjeet Singh, Finance
Minister in Rajiv Gandhi’s government, with the introduction of the Modified Value Added Tax
(MODVAT). Subsequently, Prime Minister P V Narasimha Rao and his Finance
Minister Manmohan Singh, initiated early discussions on a Value Added Tax (VAT) at the state
level. A single common "Goods and Services Tax (GST)" was proposed and given a go-ahead in
1999 during a meeting between the Prime Minister Atal Bihari Vajpayee and his economic
advisory panel, which included three former RBI governors IG Patel, Bimal Jalan and C
Rangarajan. Vajpayee set up a committee headed by the Finance Minister of West Bengal, Asim
Dasgupta to design a GST model.

Launch

The GST was launched at midnight on 1 July 2017 by the President of India, Pranab Mukherjee,
and the Prime Minister of India Narendra Modi. The launch was marked by a historic midnight (30
June – 1 July) session of both the houses of parliament convened at the Central Hall of the
Parliament. Though the session was attended by high-profile guests from the business and the
entertainment industry including Ratan Tata, it was boycotted by the opposition due to the
predicted problems that it was bound to lead to for the middle and lower class Indians. It is one of
the few midnight sessions that have been held by the parliament - the others being the declaration

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 of India's independence on 15 August 1947, and the silver and golden jubilees of that
occasion. After its launch, the GST rates have been modified multiple times, the latest being on 18
January 2018, where a panel of federal and state finance ministers decided to revise GST rates on
29 goods and 53 services.

Members of the Congress boycotted the GST launch altogether. They were joined by members of
the Trinamool Congress, Communist Parties of India and the DMK. The parties reported that they
found virtually no difference between the GST and the existing taxation system, claiming that the
government was trying to merely rebrand the current taxation system.

TAX RATES UNDER GST

Rate classification for goods

Exempt 5% 12% 18% 28% 28% +

Cess
Electrical Apparels Articles of Fork lifts, lifting and Paints and Cars
energy valued less apparels handling equipment varnishes Pan
Newspapers than exceeding Electrical apparatus Refrigerators masala
Milk INR1,000 INR1,000 for radio and Air-
Duty credit Fly ash Bio-diesel television conditioners Cigars
scrips Fishing net Printing ink broadcasting
Food grains and fishing Specified parts Chocolates
hooks of sewing Slabs of marbles
Aircraft machine and granite
engines Furniture
Bio-gas wholly made of
bamboo or
cane

Rate classification for services

Exempt 5% 12%-18% 28%

 Education  Goods transport  Works contract  Betting

 Healthcare  Rail tickets (other  
Business Class air travel Gambling
 Residential than sleeper class) Telecom services  Hotel/ Lodges with
accommodation  Economy class air  Financial services tariff above INR 7500
 Hotel/ Lodges with tickets  Hotel/ Lodges with tariff
tariff below INR 1000 between INR 1000 and
7500

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Only rates of select goods and services have been mentioned here

 GST rate on pearls, precious or semi-precious stones, diamonds (other than rough
diamonds), precious metals (like gold and silver), imitation jewellery, coins – 3%

 GST rate on rough diamonds – 0.25%

There are three types of applicable GST:

1. CGST (Central GST): where the central government will collect the revenue.
2. SGST (State GST): in this the revenue will be collected by the state government for intra-
state sales.
3. IGST (Integrated GST): the revenue will be collected by the central government for inter-
state sales.

s
COMPLIANCES UNDER GST

For each registration, a normal taxable person has to file following :

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 GST IMPACT ON INDIAN ECONOMY

The following are the impacts of GST to look out for:

1. Reorganization of corporate functioning:

GST will force many companies to reorganize their functioning.

Now Companies will ask their vendors and suppliers to provide bills/ invoices as GST will
make it extremely difficult for the companies to avoid taxes.
Big organizations will benefit more as they have a well-developed supply chain in order
and can knockoff with the taxes paid on inputs. On the other hand small organizations have
to spend more as compliance cost will increase.

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 2. Passing on the benefit of lower tax

While the GST Council, headed by Finance Minister ArunJaitley, will closely monitor
whether companies are passing on the benefit of lower taxes to consumers, experts have
expressed doubts about the implementation of anti-profiteering norm.
“We believe that if companies transmit the direct benefits of the GST (such as a lower tax
rate), they seek to retain partly (if not fully) the indirect benefits of logistics cost savings,
rationalization of business processes and uninterrupted flow of input credits, "Nomura said
in a report.
3. Inflation may remain low

There is no doubt that inflation will remain low as GST rates on essential goods, such as
food grains, household consumer items and essential services, have either been exempted
or kept lower.
However, assuming that GST has the desired effect of increasing tax compliance, the tax
burden would increase, Morgan Stanley said in a note. This could cause companies to pass
the costs of greater tax compliance to the consumer at a later stage.
Most services are not included in the Consumer price CPI inflation basket and as a result,
higher GST rates do not reflect retail price movements, as measured by government data.

4. Economic growth may not jump immediately

Economists are not sure of the immediate impact of GST, and some say it could hamper
growth in the short term as large companies reorganize their operations and small
businesses lose their income.
"The implementation of GST will be disruptive given that there will be a major shift in the
supply chain," said Sinha of India Ratings, but added that tax reform will benefit the
economy in the medium and long term.
Most analysts predict that the economy will grow by almost 7.4% in 2017-18, the first year
of GST deployment, slightly above 7.1% in 2016-17 but below 7.9% of 2015-16.
Although the GST is not a "positive" for short-term economic growth, Crisil’s Joshi said
the reform would improve the ease of doing business, strengthen investor sentiment and
attract more foreign investment in coming years.

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2. Barriers in Implementation of GST

GST – Challenges for Success in India

GST is the biggest reform in Indian taxation since 1947, but there were many challenges for its
successful implementation. These are as under

1. Passing of Bill in Rajya Sabha: Since Central Government was not having sufficient
majority in the Rajya Sabha. Thus, it had to ensure safe passage as it was not be cake-
walk for the Union government to pass the Bill in the Upper House of Parliament.

2. Consent of States: For implementing it was critical that GST bill is passed by the
respective state Governments in state assemblies so as to bring majority. This was a
herculean task.

3. Clubbing Taxes: The biggest challenge of GST implementation was bringing all the
indirect taxes under one roof, which is the biggest feature of GST. There has been
opposition asking to include purchase tax by a few states. Other states were reluctant
about alcohol, tobacco products coming under GST. This was due to the fact that a
major chunk of state revenue was derived from these products.

4. Statutory Requirements: As the imposition of GST was to be delegated to both state

and central government, the constitution had to grant powers to both through an
amendment. It was seen as a difficult task as the law expects at least two-thirds
majority from the members of the parliament and that wasn’t easy given the current
political scenario of the country.

5. Make-shift Arrangements: State governments were demanding compensation from

the central government as they foresee a major dent in the revenue due to CST losses.
This was asked for the first 5 years after the implementation of GST.
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 6. Framework For Tax Disputes: There has to be a uniform legal procedure for tax
disputes and litigations to avoid any confusion.

7. Defining Inter-State Transactions: With the transportation services available

everywhere, the place of sale and consumption may not be the same. This makes it
difficult to go forward with revenue allocation. Hence, it became important to define
procedures to tackle such problems.

8. Revenue Neutral Rate (RNR): It was one of Prominent Factor for its success. We
know that in GST regime, the government revenue would not be the same as
compared to the current system. Hence, through RNR Government is to ensure that its
revenue remains the same despite of giving tax credits.

9. Threshold Limit in GST: While achieving broad based tax structure under GST,
Both empowered committee and Central Government had to ensure that lowering of
threshold limit should not be a “taxing” burden on small businessmen in the country

10. Robust IT Network: Government incorporated a Goods and service tax network
(GSTN). GSTN has to develop GST portal which ensure technology support for
registration, return filing, tax payments, IGST settlements etc. Thus there needed a
robust IT backbone

Other Challenges Threatening Implementation or Roll-Out of GST

A small-scale manufacturing company with operations in only one state will have to file a
minimum of 37 returns instead of the current 13 once the goods and services tax (GST) goes live
from July 1, 2017, increasing work for industry, accountants and banks. If it does business from
offices in more than one state, the number of returns will go up accordingly. A business with
offices in three states will have to file 111 tax returns in a year.

Understanding GST intricacies is not easy

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While the location of the supplier and the customer within the country is immaterial for the

purpose of CGST, SGST would be charged only when the supplier and the customer are within the

state.

An illustration from the FAQ published by the government: Suppose the CGST rate is 10% and the

SGST is 10%. When a wholesale steel dealer in Uttar Pradesh supplies bars and rods to a

construction company within the state for, say, Rs 100, the dealer would charge CGST of Rs 10

and SGST of Rs 10, in addition to the basic price of the goods.The wholesaler would be required

to deposit the CGST into a central government account and the SGST into the account of the state

government.“Of course, he need not actually pay Rs 20 (Rs 10 + Rs 10) in cash, as he would be

entitled to set-off this liability against CGST or SGST paid on his purchases (say, inputs),” said the

FAQ

This is where implementation challenges arise, as former ICWAI president Raghu explained.

Every invoice from buyers and sellers must be entered in the GST system correctly to ensure that

benefits accrue down the chain.

We have a system today across a majority of small units where an accountant comes (in) once a

month, makes vouchers and inputs details for taxes, that will have to end now because we are

moving to an online, almost real-time system that will need a lot of manpower.

Industry, services not yet there

India’s industry and its banking system will have to change systems, train personnel and accept the
extra workload for the new taxation system.

The banking system clearly said it’s not yet ready. Industry is ambivalent.Nearly 50% of Indian
businesses were not aware of the changes that GST will usher in.

Tally accounting software is widely used by Indian companies. The company was waiting for the
GST rules to be finalised, so that it can roll out its GST software for Indian companies.

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The industrial sector, especially the services sector, was waiting for more clarity on tax rates,
processes and the time frame for the systems to settle down. “What we still don’t know is which
tax slab we fall in,” a marine service provider operating in Goa told on condition of
anonymity.While it is good that the taxation system will be streamlined and we will not have to
deal with multiple tax payments like excise, service tax and value added tax, we still don’t know
how much time it will take for everybody to be on board.

CHAPTER-2
Literature Review

Csontos et al. (1998), conducted a study in Hungarian found that many citizen are not aware of the
numerous kind of taxes levied on them. They have very limited knowledge on government true
expenditure and the cost of public services provided by the state government. This poor awareness
has created many misconceptions on the true value of tax.

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 Saira et al. (2010), a majority of respondents has heard of the GST while respondents who did not
hear about the GST are female respondents. This study was supported by Cullis and Jones (1992),
where the results of research showed that female respondents in the United Kingdom more
ignorant to government revenue sources than male respondents. These results also emphasize that
men pay more attention to tax issues.

The study conducted by Lai and Choong (2006), shows the same finding as previous studies
whereby the majority of participants in their study felt that the GST will affect the prices of goods
and services as well as the rise in wages. Results study indicate that more than half of the
respondents expected the GST will affect the spending habit and perceived that they would spend
less and maintain their investment and saving amount after implementation of GST. Theoretically,
GST did not result to inflation, but the study found that most participants predicted that GST will
result in inflation.

Study conducted by Price Water Coopers India (2006), respondents which are trader do not felt
VAT will affect the prices on their products. This finding is interesting and contrary to the popular
notion that VAT contributed to price increases in most of the manufacturing sector.

.
CHAPTER-3
RESEARCH GAP

After going through many published literature in my research context is clearly indicate a very few
research has been conducted to analyze the true barriers facing by Govt. in implementation of GST.
The analyzed barriers are to be ranked with a view to find the effectiveness of such barriers upon
implementation of GST.

CHAPTER-4

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 RESEARCH METHODOLOGY

The all calculated barriers will be Ranked by use of ISM (Imparative Structure Model). The Details
of this model will be explained in Report.

CHAPTER-5
ANALYSIS THROUGH IMPERATIVE STRUCTURE MODEL (ISM)

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 

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 “If the (i, j) entry in the SSIM is V, then the (j, i) entry becomes 0 and the (i, j) entry in the
reachability matrix becomes 1.

 If the (i, j) entry in the SSIM is A, then the (j, i) entry becomes 1 and the (i, j) entry in the
reachability matrix becomes 0.

 If the (i, j) entry in the SSIM is X, then the (j, i) entry becomes 1 and the (i, j) entry in the
reachability matrix also becomes 1.

 If the (i, j) entry in the SSIM is O, then the ( j, i) entry in the reachability matrix becomes 0
and the (i, j) entry in the reachability matrix also becomes 0 and. ”

CHAPTER-6
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 CONCLUSION

Thus Goods and Services Tax which is predominantly a tax on business transactions is unlikely to
have a direct impact on the common man. However, in case businesses persistent to face working
capital problems due to input credit blocks arising out of the input tax credit matching mechanism, as
they may be prompted to upsurge prices, which would ultimately be borne by the end consumer. Such
a practice may, however, be checked by the anti-profiteering mechanism applicable under the Goods
and Services Tax law. The government on the whole is trying to reduce the burden of compliance for
businesses by relaxing the return filing requirements. Also, the provisions of TCS on e-commerce and
registration for online sellers have also been relaxed for the time being. Change is definitely never
easy. The government is taking remedial measures to smoothen the road to GST. It is important to
take a leaf from global economies that have implemented GST before us, and who overcame the
teething troubles to experience the advantages of having a unified tax system and easy input credits.
As GST has been implemented in the Indian economy most of the current challenges of this move
will be a story of the past. India has become a single market where goods can move freely and there
will lesser compliances to deal with for businesses.

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 CHAPTER-7
SUGGESTIONS &RECOMMENDATIONS

 Simpler Tax Structure Is Our Initiate:

The list concerning the highest tax slab of 28% is reduced in number and left with 50 from the 228
Goods and Services. Perhaps, we can take it as a positive move towards to slash the tax rate
bracket of 28%perfectly. The existence of only three slabs which are 5%, 12%, and 18% will
create a simpler system for easy flow of GST.

 Quarterly Filing Can Be The Solution:

Taxpayers got relief as the GST Council has made an announcement to exempt taxpayers from
furnishing GSTR-2 and GSTR-3 till March 2018. But the main proposal of traders is to make a
system to file GST on a quarterly basis instead of monthly filing for the businesses generating
revenue more than Rs. 1.5 Crore. There is no indication on allowing the GST filing on quarterly
basis yet. It is expected that the GST Council may allow the GST filing on a quarterly basis after
the invoice matching concept comes in March 2018.

 Allow Input Tax Credit Under The Composition Scheme:

Under the GST regime, the composition dealers are not allowed to take input tax credit benefits for
the taxes paid. This is the drawback for traders availing composition schemes. As the government
is also planning to increase the threshold limit under composition scheme, allowing input tax credit
will be additive to the composition scheme.

 Including Some Exempted Goods In GST Regime:

Some goods & services like electricity, real estate, and petroleum are out of GST structure. As they
are out of GST bracket, the input tax credit benefits cannot be utilized by the segments involved in
the process and so it is a loss for them. In addition, these sectors are out of indirect tax system at
the mercy of state government. Some sectors such as oil and gas are demanding to be included in
the GST. Even experts suggest that the right way to implement GST is to put all the sectors under
the bracket of GST, but it would take some time to implement the required tweaks to the system.

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  Let E-waybill Go Away
The industry demands to let the GST e-way bill go, which is a digitally generated instrument to
move the goods worth Rs. 50,000 or more. As GST Council has postponed the implementation of
e-way until April 2018, the experts say the GST is a consumption tax so it doesn’t require to add
movement of goods in the bracket of GST.

Although, the council is silent on the suggestion and running a pilot regarding the e-way bill in
Kolkata and expected to spread it in other states. The industry is well acknowledged with the fact
that when the e-way bill will be uploaded to GST network, it would create another technological
hurdle after implementation.

CHAPTER-8

REFERENCES

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Schreiner, M. (2000), “Ways donors can help the evolution of sustainable microfinance
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inquiry. Technological Forecasting and Social Change 48 (3), 285-309.
Singh B. and Chawala s. (2009). Microfinance through and with SHG. An Analytical Study Book.
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Thapa, B., Chalmers, J., Taylor, W. and Conroy, J. (1992), “Banking with the poor, report and
recommendations prepared by lending Asian banks and non-governmental organizations”,
Brisbane, Australia.
Vishal Vivek Jacob, (2011). “Microfinance: Current status and Growing Concerns in India”, Avant
Garde, October 1, 2011,http://www.iitk.ac.in/ime/MBA_IITK/avantgarde/?p=475.
Warfield, J.W., (1974). Developing interconnected matrices in structural modeling IEEE
Transactions on Systems, Men and Cybernetics 4 (1), 51-81.
Woller, G. (2000), “Reassessing the financial viability of village banking: Past performance
and future prospects”, Micro Banking Bulletin, Microfinance Information Exchange (MIX).
Yadav. P; Taruna (2016), Microfinance : Emerging Role, Issues and Challenges in India, Indian
Journal Of Applied Research, Volume : 6 | Issue : 1 | January 2016 | ISSN - 2249-555X, pp 29-31.
Csontos et al. (1998), conducted a study in Hungarian .
Saira et al. (2010) , effectiveness & awareness of taxation.

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 CHAPTER-9

Sources

 www.gst.gov.in

 ICAI Bare Act and journals

 Data shared by PWC consultant.

 Internet

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