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aditiahuja
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Asked: 2019-10-31T12:18:28+00:00 In:

What are the GST Loopholes?

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GST was launched in year 2017. After 2 years what you think there are loopholes that should be resolved.

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    aditiahuja

    Goods and Services Tax was introduced in India on 1st July 2017. It merged different taxes including import duties and VAT into one single slab for transparent and efficient management of the taxation structure. However, despite various benefits, there are some disadvantages of GST that creates loopholes.

    1- Multiple GST rate opens a window of misuse. Currently, the different slabs are 0%, 5%, 12%, 18%, 28% and 28% plus. Vendors can manipulate input credit to minimise the levied tax.

    2- Registered brand names attract higher GST. One can evade that by creating not registered but equally popular products.

    3- Separating products that would otherwise come as one decreases the amount of tax payable. For example, dividing a Rs. 110 product into two items of Rs. 100 and Rs. 10 can increase profit almost Rs. 10.

    4- One of the significant GST benefits is its automated process. However, if a brand opts not to trademark their business to claim tax exemptions, they can avoid automated tax calculations.

    There are many advantages and disadvantages of GST for MSMEs in Indian Budget 2019. For any individual, it is vital to understand this new taxation setup and function accordingly.

  2. Loopholes in the GST (Goods and Services Tax) system are weaknesses or vulnerabilities that can be used to avoid paying taxes or gain unfair advantages. Despite the fact that the GST system was created to make taxing simpler and decrease evasion, numerous loopholes still exist:

    Fraudulent claims of input tax credits (ITC) made by businesses on fictitious invoices can result in a loss of income for the government. Authorities are working hard to close this big GST loophole.

    • Abuse of the composition scheme: Under the composition scheme, small enterprises may record a lower turnover in order to pay less tax. Tax revenue imbalances may result from this.
    • Misclassification of Goods and Services: Incorrectly classifying goods or services into lower tax rate categories can lead to lower tax liabilities than required.
    • Inter-State Transactions Manipulation: Businesses may manipulate the place of supply to claim a lower tax rate on inter-state transactions, resulting in reduced tax payments.
    • E-commerce Platform Challenges: E-commerce platforms may face difficulties in tracking and reporting taxes accurately, allowing some sellers to evade taxes.
    • Complex Rate Structure: It can be difficult to understand the numerous tax rate structure under GST, which can result in disagreements and legal interpretations that take advantage of the complexity.
    • Non-filing and Late Filing: Some taxpayers may delay or avoid filing returns, leading to revenue leakage.
    • Threshold Evasion: Small businesses might intentionally stay below the GST registration threshold to avoid compliance, while still conducting substantial business transactions.
    • Reverse Charge Mechanism Issues: The reverse charge mechanism can be complex, and some businesses may exploit this by not paying taxes under the mechanism correctly.
    • Lack of Technology Infrastructure: Inadequate technology infrastructure in some regions can hinder effective tax monitoring and enforcement.

    It is important to remember that tax authorities are constantly attempting to close these GST loopholes through stronger enforcement, better technology, and regulatory changes. Tax evasion and abusing the GST system are prohibited actions that may incur fines and other legal repercussions. Businesses and individuals are urged to abide by tax laws and get expert guidance when negotiating complicated tax issues.