The Goods and Services Tax (GST) is an indirect tax system that has been a significant fiscal reform in India since its implementation in 2017. This new tax structure has sparked extensive debate, with critics and advocates weighing the benefits and drawbacks of GST. Read on to learn more about the GST system and better comprehend the advantages and disadvantages of GST and its impact on taxpayers.
What Is GST?
GST is a comprehensive, multi-stage, destination-based tax system levied on every value addition. It implies that every step in the production process, right from purchasing raw materials to the final delivery of the product � is taxable under GST.
It is an amalgamation of indirect taxes levied by the central and state governments, such as VAT, excise duty, service tax, and more. The primary objective of GST is to eliminate the cascading effect of taxes and bring uniformity to indirect taxation in the country.
The table below demonstrates the indirect taxes encompassed by GST:
| Jurisdiction of Tax | Types of Tax |
| Indirect taxes levied by the Central Government of India | � Central Sales Taxes � Service Tax � Special additional custom duty � Countervailing Duty � Central Excise Duty |
| Indirect taxes levied by the State Government in India | � Luxury tax � State VAT � Purchase tax � Taxes on Advertisement � Octroi duty � Entry tax � Tax on lottery, gambling, and betting. |
What Are the Advantages of GST?
Some of the top advantages of GST are discussed below:
1. Unified Tax System
One of the primary advantages of GST is the unification of multiple indirect taxes into a single tax system. By doing so, it has eliminated the complexities associated with the calculation and payment of various state and central taxes. GST has made the taxation process simpler and more transparent for businesses and consumers.
2. Annihilating the Cascading Impact
GST has successfully eliminated the cascading effect of taxes, where a tax was charged on top of another tax. Under GST, taxes are levied only on the value added at each stage of the supply chain, thereby ensuring the tax burden is equitably distributed among all parties involved.
3. Ease of Doing Business
GST has simplified the tax filing process, and it is easier for businesses to comply with tax regulations. Businesses have to register only once to do business across the country. Furthermore, the entire GST process, from registration to filing returns, is done online, lessening the need for physical documentation and making the process more efficient.
4. Better Logistics and Faster Delivery of Services
GST has eliminated interstate taxes, leading to an improvement in the movement of goods across states. GST has not only resulted in faster goods and service delivery but has also reduced the cost of transportation, thereby benefiting businesses and consumers alike.
5. Regulation of the Unorganised Sector
It has brought several unorganised sectors, such as textiles and construction, under the tax net. It has resulted in better regulation of these sectors and made them more accountable.
6. Boost to the ‘Make in India’ Initiative
GST has boosted the ‘Make in India’ initiative, making Indian goods more competitive in the global market. By reducing the cost of production and eliminating the cascading effect of taxes, GST has made Indian goods more appealing to international buyers.
7. Enhanced Economic Growth
GST is expected to enhance economic growth by promoting fair trade practises. With a uniform tax structure across the country, GST has created a single national market, eliminated economic distortions, and promoted voluntary compliance.
8. Increased Efficiency in Tax Administration
It has led to an increase in efficiency in tax administration. With all the indirect taxes under one roof, GST has simplified the tax administration process, making it more efficient and less prone to corruption and malpractice.
What Are the Disadvantages of GST?
The disadvantages of GST are discussed below:
1. Increased Tax Burden on SMEs
GST has a key impact on Small and Medium Enterprises (SMEs). Under the prior tax structure, only businesses with an annual turnover exceeding Rs.1.5 crore were required to pay excise duty. However, under GST, businesses with an annual turnover above Rs. 40 lakh are obligated to pay GST, imposing a significant tax burden on SMEs.
2. High Compliance Burden
This taxation regime mandates companies to register with GST in all states they operate in. The procedures of registering with the regulating body, issuing GST-compliant invoices, keeping digital records, and filing returns have significantly increased the burden on businesses.
Also, not all states in India are equipped to implement the e-governance model adopted by GST. So it is challenging for companies to transition into this regime.
3. Increased Costs for Businesses
The transition to GST has led to increased costs for businesses. Businesses must upgrade their existing accounting software to GST-compliant software, train their employees to use the new system, and hire tax professionals to ensure GST compliance. These additional costs have impacted small businesses with limited resources.
4. Not Fully Inclusive
Despite being a comprehensive tax, some goods and services are still outside the purview of GST. For instance, petroleum products, which constitute a significant part of the economy, are not covered under GST. It has been a point of contention for many critics of GST.
5. Multiple Tax Slabs
GST has multiple tax slabs, which might create confusion and complications in tax calculation. Critics contend that a single tax rate would have been more manageable and effective.
6. Complex GST Structure
While GST has simplified the indirect tax system, its structure is still complex, with different rates and rules for different categories of goods and services. It is more difficult for businesses to understand and comply with GST regulations.
7. Lack of Clear Guidelines
Many businesses have reported a lack of clear guidelines regarding GST implementation. It has led to confusion and uncertainty, resulting in non-compliance and penalties.
8. Blockage of Working Capital
Working capital is crucial for every business. The delay in the refund of input tax credits under GST has led to a shortage of available funds for businesses that rely heavily on their working capital for daily operations.
FAQs on Advantages and Disadvantages of GST
Here are some commonly asked questions Advantages and Disadvantages of GST:
What is the ‘One Nation, One Tax’ objective?
The ‘One Nation, One Tax’ objective is an exciting concept that aims to create a unified tax structure across the country. Under this objective, GST replaces multiple indirect taxes levied by the central and state governments, unifying them into a single tax system. The objective promotes economic integration and eliminates disparities among different states in terms of tax policies.
What are the GST rate slabs in India?�
The GST tax structure has four main slabs � 5%, 12%, 18%, and 28%. Certain goods, like jewellery and select automobiles, have additional slabs.
What is the Composition Scheme under GST?
The Composition Scheme under GST allows eligible businesses to pay a fixed percentage of their turnover as tax. It significantly reduces the compliance burden for small businesses and enables them to focus on their core operations.
How has GST impacted the logistics sector?
GST has had a substantial impact on the logistics sector. The removal of interstate checkpoints has streamlined the movement of goods across state borders and led to significant time and cost savings for logistics operators and businesses.
How has GST increased operational costs for businesses?
Under GST, businesses must invest in new technologies and resources to comply with GST regulations and maintain proper records. It incurs additional expenses for training employees and upgrading systems. The increased tax compliance requirements, such as filing multiple returns and maintaining detailed invoices, add to the administrative burden.
GST has many advantages and disadvantages, and its overall impact on the economy is substantial. The taxation system has been streamlined, making the process more transparent and easy to comply with. However, it also has some challenges that must be addressed for smoother operations. The ongoing debate on the advantages and disadvantages of GST and its effectiveness will continue as the government works towards fine-tuning its implementation and overseeing the stakeholders’ concerns.
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