One of the most significant indirect tax transformations of the country was the Goods and Services Tax – GST. Even though it helps boost the economy, there are various advantages and disadvantages of GST.
Let us look at some of the GST Advantages and Disadvantages
What are the benefits of GST?
GST benefits in India will assist the Government as well as the consumers in the long run in creating a win-win situation for both. Some of the advantages of GST in India are enlisted as follows:
• Mitigation of Cascading effect :
Under the GST administration, the final tax would be paid by the consumer for the goods and services purchased. However, there would be an input tax credit structure in place to ensure that there is no slumping of taxes. GST is levied only on the value of the good or service.
• Abolition of Multiple Layers of Taxation :
One of the advantages of GST is that it integrated different tax lines such as Central Excise, Service Tax, Sales Tax, Luxury Tax, Special Additional Duty of Customs, etc. into one consolidated tax. It prevents multiple tax layers imposed on goods and services.
• Resourceful Administration by Government :
Previously, the management of indirect taxes was a complicated task for the Government. However, under the GST establishment, the integrated tax rate, simple input of tax credit mechanism and a merged GST Network, where information is available, and administration of resources are well-organised and straightforward for the Government.
• Enhanced Productivity of Logistics: the restriction on inter statement movement of goods has reduced. Earlier logistic companies had to maintain multiple warehouses across the country to avoid state entry taxed on interstate movements.
• Creation of a Common National Market: GST gave a boost to India’s tax to Gross Domestic Product ratio that aids in promoting economic efficiency and sustainable long – term growth. It led to a uniform tax law among different sectors concerning indirect taxes. It facilitates in eliminating economic distortion and forms a common national market.
• Ease of Doing Business: with the implementation of GST, the difficulties in indirect tax compliance have been reduced. Earlier companies faced significant problems concerning registration of VAT, excise customs, dealing with tax authorities, etc. The benefits of GST has aided companies to carry out their business with ease.
• Regulation of the Unorganized Sector under GST: it has created provisions to bring unregulated and unorganised sectors such as the textile and construction industries to name a few under regulation with continuous accountability.
• Reduction of Litigation: GST aids in reducing litigation as it establishes clarity towards the jurisdiction of taxation between the Central and State Governments.GST provides a smooth assessment of tax.
• Tackling Corruption and Tax Leakages: with the GST online network portal, the taxpayer can directly register, file returns and make payments of the taxes without having to interact with tax authorities. A mechanism has been devised to match the invoices of the supplier and buyer. This will not only keep a check on tax frauds and evasion but also bring in more businesses into the formal economy.
There are various benefits of GST in India as listed above. However, a tax reform of such magnitude comes with its teething problems.
Disadvantages of GST :
• IT Infrastructure: since GST is an IT-driven law, it cannot be sure whether all the states in India are currently equipped with infrastructure and workforce availability to embrace this law. Only a few states have implemented this E- Governance model. Even today some states use the manual VAT returns system.
• Higher Tax Burden of SME’s: earlier the small and medium enterprises had to pay excise duty only on a turnover that exceeded Rs. 1.5 crore every financial year. However, under the GST administration, businesses whose turnover exceeds Rs 40 lacs are liable to pay GST.
• Increase Burden of Compliance: The GST administration states that companies are required to register in all the states they operate in. This increases the burden on the business for excessive paperwork and compliance.
• Petroleum Products don’t fall under the GST Slab: petrol and petroleum products have not been included in the scope of GST until now. States levy their taxes on this sector. Tax credit for inputs will not be available to these industries or those related industries.
• Coaching of Tax Officers: there is inadequate training that is provided to the Government officers for practical usage and implementation of such systems since the GST administration heavily banks on information technology.
GST in India was a sweeping reform and benefits of GST and has changed the way businesses are conducted. Businesses are being included in the formal economy through GST implementation. GST and its benefits have provided long term returns for the Indian economy on a large scale which have been welcomed as a new change by all the stakeholders.