The present system of indirect structure is marked with the following problems:
Presently, there are a number of taxes, some of which are levied by the Centre, others being levied by States. This multiplicity makes it complex to comprehend the law.
The present system has various instances where a tax is levied on tax, thereby resulting in cascading effect. For example, VAT is levied on the value of goods inclusive of Excise.
Non-Availability of Cross-Credit
There is non-availability of credit across different laws in most of the cases, especially between the Central and State levies. For example, credit of VAT is not available against central excise or service tax and vice-versa. Similarly, credit of CST is not available against VAT.
Interpretational issues among the various levies result in double taxation in certain industries. For example, overlapping of the definition of goods and services is seen in case of restaurants. Hence, it is doubly taxed as VAT and service tax both are levied.
Presently, different laws exist for different levies. Therefore, compliances have also been prescribed separately for each. This makes it difficult to meet the compliance and payment deadlines, and makes it difficult to focus on core business activities. Further, different records have to be maintained for each Authority.