GST (Goods and Service Tax) is an Indirect Tax. The Government of India introduced the GST with the objective of replacing the many existing Indirect Taxes in India. The Government introduced the GST Bill on 1st July 2017 as a comprehensive tax to be levied on manufacture, sale, and consumption of goods and services, for the entire country. It is a destination-based tax levied at every stage of value addition.
The introduction and implementation of GST was a watershed moment in Indian tax reform, it has changed the way businesses view taxes. The idea behind introducing GST was to simplify the tax regime and to make it more streamlined. The GST aims to widen the tax collection net and make the process business-friendly and conducive to growth.
There are manifold advantages of GST. However, like every process, GST also has its share of disadvantages. In this article, we will look at the various advantages and disadvantages of GST which businesses should know.
Advantages Of GST
- GST has combined multiple taxes like Service Tax, Central Excise, Luxury Tax, Sales Tax, etc and brought it all under one roof. This has simplified the tax calculation and collection process.
- GST has improved the transparency of the tax collection process.
- Industry experts believe that the costs of goods and services will come down in the long run due to GST, this is because earlier a number of Value Added Tax (VATs) caused the price of goods and services to inflate. Now, one single tax will eradicate that problem.
- Service providers, who have a turnover of less than Rs.20 lakh, need not pay GST. In North-Eastern states, the threshold is lower – Rs.10 lakh. This is a big advantage for small businesses, as they can avoid the time-consuming taxation process and rather focus on their business activities.
- GST will also bring much-needed accountability and regulation to unorganized sectors such as the textile industry. In India, unorganized sectors provide large-scale employment and generate huge revenue, but they are quite haphazard when it comes to tax accountability. GST seeks to correct this anomaly.
- Under the present taxation system, there are separate taxes for goods and services. For this, the transaction values have to be segregated into values of goods and services to determine tax liability. This results in heightened complications and administration headaches. GST will eliminate all this.
- Earlier, the government faced the complex task of managing multiple indirect taxes. But the backbone of the GST, the GST Network (GSTN), will manage all the processes related to GST operation. This is a fully integrated platform, which will simplify and ensure the smooth functioning of the GST activities.
- GST will be levied only at the final destination of consumption, thereby, removing double taxation at multiple points from manufacturer to retailer outlets. This is a step towards eradicating economic distortions.
- GST has boosted India’s Gross Domestic Product (GDP). The GDP of a country reflects economic efficiency and growth over a period of time. GST has ensured that multifarious industries come under uniform tax law which has made it much easier for businesses to function.
- One of the chief advantages of GST is that the taxpayers can register, file returns and pay taxes all online with the GST portal. There are systems in the process which will compare and match the invoices of the supplier and buyer. This mechanism will effectively control tax fraud and tax evasion. At the same time, it will ensure a higher flow of business to the national economy, in a structured and organized manner.
- In the earlier VAT system, E-commerce businesses got differential treatment with regards to tax compliance. But GST has removed all confusions related to this. The entire E-commerce sector, pan-India, now follows well-laid provisions under GST law. This has also eliminated complications related to inter-state goods’ movement.
But, a tax reform of this scale can’t be without its share of drawbacks. So, it is imperative that businesses are aware of these. Let us take a quick look at some disadvantages of GST:
Disadvantage of GST
- GST is a totally IT-driven law. While the idea is novel, the flip side is that all states in India aren’t equipped with the necessary infrastructure to implement this system to its full extent.
- Companies who operate their businesses in multiple states, have to register in all those states. This adds an extra level of complexity that did not exist earlier.
- There is a distinct possibility that some items will cost more after GST implementation. Items of expenditure like insurance renewal premium, healthcare, courier services, DTH services will become costlier – items that millions of us use every day.
- GST has earned the nickname “Disability Tax,” as it has put items like wheelchairs, hearing aids, Braille papers, etc under the tax net.
- The GST net has excluded petrol and petroleum products until now. This does not gel with the idea of “tax unification,” which is the driving force behind GST. Every state levies its own taxes on these products. These industries, or the ones related to them, won’t be able to claim the Input Tax Credit.
- The tax officers and other related officials need extensive and exhaustive training to implement and monitor the new rules in an effective manner.
To conclude, every reform or new initiative won’t come without its share of hassles and disadvantages. But many of these disadvantages are temporary because the GST Council is monitoring the implementation of GST on a regular basis, and also taking regular feedback from the business sector regarding the issues that they face. So, we can be sure that over time, GST will fulfill its objective of being a growth and business-friendly tax mechanism.