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GST challenges during COVID-19 crisis

  • Aug 10, 2020 | Divita S Gupta

The last three months have had economies across the world struggle with the Coronavirus crisis. India is no stranger to economic challenges but a pandemic of this degree is on the verge of crippling several industries and businesses in the country. When a business crumbles, the tax system that generates revenue because of said business will also face challenges. India’s indirect tax system, the Goods and Services Tax is still in its development phase having been implemented merely three years ago in July 2017. This article outlines the challenges that India’s largest indirect tax reform is currently facing because of the Covid-19 economic crisis.

Fall in revenue collection
Tax collections have suffered in wake of the Coronavirus pandemic and consequent lockdown. Union Finance Minister, Nirmala Sitharaman announced that collections for the month of April and May were 45% lower than the usual range. There could be an up in the revenue numbers since the deadline for filing returns has been extended to September 30th, 2020. GST collections for the month of March, 2020 stood at a five-month low of ₹97,500 crores, falling short of its target of ₹125,000 crores.

Challenges in meeting GST liabilities
The lockdown has disrupted business operations across the nation. Challenges like shortage of raw material, hiked prices, slowdown in demand, liquidity crisis and delayed payment cycles are likely to cause a lot of issues while filing GST liabilities, even after an extension in deadlines file returns, waiver of late fees and reduction in rate of interest on late filing charges.

Demand for rate cuts
Experts have reckoned that the economic crisis caused due to the Coronavirus pandemic is likely to cripple a number of industries especially hospitality, travel and tourism. Obviously, a number of industries are going to demand rate cuts and exemptions - this is going to be quite a challenge for the Government, both Centre and State as any sort of rate cuts will lead to lower revenue collections. On the other hand, no GST exemptions or rate cuts are likely to lead to failure in payment and a build up of output tax liabilities.

Possible disputes while expanding GST ambit
If the Centre takes on recommendations from certain ministries and other experts and brings certain commodities like crude oil, oil and gas, aviation turbine fuel and natural gas which are taxed under the VAT system, under the GST ambit, it could help with revenue collection. But this is likely to fuel the ongoing dispute between States and the Centre who are already knocking heads with the Centre for delayed compensation.

The Centre has been implementing reform and relief measures for various different businesses and hopefully, we should be able to drift through this crisis.

Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. She has written on topics like mutual funds, insurance, taxes, SME financing for globally recognized banking and financial organizations including ICICI, Aditya Birla Group, News Corp. With a Masters in Business Administration from Symbiosis International University, she currently owns a small business in Mumbai.

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