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Society, Management and Accounting

8A. GST Reforms, Challenges & Future Direction

GST Basics: Meaning, Structure, Rates, GST Council & Key Provisions

Paper I · Unit 3 Section 10 of 13 0 PYQs 23 min
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8A. GST Reforms, Challenges & Future Direction

8A.1 Key GST Reforms Since 2017

GST has undergone continuous refinement since its launch:

Year Reform Significance
2017 GST launch — 1 July "One Nation, One Tax" — replaced 17+ taxes
2018 E-way Bill launched — 1 April Anti-evasion — mandatory for goods > ₹50,000
2020 E-invoicing introduced (turnover > ₹500 crore) Real-time invoice reporting to GSTN; IRN system
2021 E-invoicing threshold reduced to ₹50 crore Expanded coverage; more businesses brought in
2021 QRMP scheme (Quarterly Return, Monthly Payment) Small taxpayers — quarterly GSTR-1 + GSTR-3B
2022 E-invoicing at ₹20 crore threshold Further expansion
2023 E-invoicing at ₹5 crore threshold Nearly all B2B transactions covered
2023 Amnesty scheme for GSTR-9 non-filers Reduced penalty for old non-filers
2024 GST on online gaming — 28% on face value Supreme Court challenge; significant revenue

8A.2 Challenges of GST

Despite its success, GST faces several challenges:

  1. High compliance burden: Small businesses struggle with monthly returns, E-invoicing, E-way bills — requiring accounting software and internet access not always available.

  2. Multiple rates: Five slabs (0%, 5%, 12%, 18%, 28%) + cess create classification disputes. The same product can attract different rates depending on its form (e.g., fresh mango = exempt, mango pulp = 12%, packaged mango drink = 18%).

  3. Petroleum products excluded: Petrol, diesel, ATF, natural gas, and crude oil are outside GST — states and Centre levy their own taxes. This creates ITC break in the supply chain for industries using petroleum as input.

  4. Real estate partial inclusion: Only under-construction properties in GST; completed properties (resale) outside GST.

  5. Fake ITC fraud: Fraudsters create fake invoices to claim Input Tax Credit without actual goods being supplied. GSTN's invoice-matching system (GSTR-2B) and e-invoicing are deterrents.

  6. State revenue concerns: Some states (manufacturing states like Gujarat, Maharashtra) argue destination-based GST disproportionately benefits consuming states.

  7. Revenue shortfall and compensation dispute (2020-22): During COVID-19, GST revenue fell sharply. Centre borrowed and paid compensation to states using RBI back-to-back loans — created political tensions.

8A.3 GST and Rajasthan — Specific Impact

Rajasthan as a consuming state:

  • Under the old system, CST (Central Sales Tax) was levied by the origin state — manufacturing states like Gujarat and Maharashtra retained this revenue.
  • Under GST's destination principle, Rajasthan (which imports more manufactured goods than it exports) gains IGST revenue from inter-state purchases.

Rajasthan's GST performance:

  • FY 2017-18 (first full year): ~₹20,000 crore
  • FY 2021-22: ~₹32,000 crore
  • FY 2023-24: ~₹50,000 crore (estimated)
  • Growth: ~150% increase in 6 years — reflecting both economic growth and improved compliance

Key Rajasthan industries and GST rates:

  • Marble and granite (Rajasthan's top mineral export): 12% GST — significant revenue
  • Handicrafts: 12% (reduces competitiveness for artisans — pressure to reduce)
  • Rajasthan tourism (hotels, resorts): 12–18% depending on room tariff
  • Gems and jewellery (Jaipur — world's gem capital): 3% GST on gold, 1.5% on cut/polished gems

8A.4 GST vs. Pre-GST — Impact on Business Accounting

Before GST — multiple registrations and records:

  • A manufacturer in Rajasthan needed: Central Excise registration, VAT registration, Service Tax registration (if providing services), CST certificate for inter-state sales.
  • Three separate accounting heads — excise, VAT, service tax with different challan formats, due dates, return formats.
  • Cascading tax: Excise duty included in assessable value for VAT → tax on tax.

After GST — simplified but complex:

  • Single GSTIN — one registration valid pan-India for IGST.
  • Unified returns: GSTR-1 (outward), GSTR-3B (summary), GSTR-9 (annual).
  • No cascading — full ITC chain eliminates tax on tax.
  • BUT: Compliance requires internet, accounting software, knowledge of HSN codes, E-invoicing, E-way bills.

Net impact on small businesses:

  • Compliance burden higher for very small (turnover < ₹40 lakh) — they may lose customers who want GST invoices for ITC.
  • Composition scheme provides relief but limits business to local/intra-state supply.