The Key Advantages and Disadvantages of GST

Table of Contents:

1. Advantages And Disadvantages Of GST To Government

2. What Is GST?

3. What Are The Types Of GST In India?

4. Top 10 Advantages of GST

5. Top 10 Disadvantages Of GST

1. Advantages And Disadvantages Of GST To Government

The Goods and Services Tax, as implemented in July of 2017, aims to create a uniform tax regime for smooth transaction of all kinds of goods and services. It seeks to eliminate the cascading effect of multiple taxes and unify the businesses under a straight-forward mechanism to pay fair taxes quickly. For the sake of the diversity in the scales, turnovers and types of goods and services, the GST council set different rates for different kinds of goods and services.

GST is divided into four components for tax collection by the Centre or State governments for transactions amongst the states, Union Territories or within the territories of states itself. The implementation of GST has numerous advantages like uniformity, simplicity and stability but also has its share of disadvantages.

2. What Is GST?

Goods And Services Tax (GST) In India was implemented in July of 2017, aimed to create a uniform tax regime for a smoother transaction of all kinds of goods and services. It attempts to eliminate the cascading effect of multiple taxes and unite the businesses under a straight-forward mechanism to pay fair taxes quickly.

3. What Are The Types Of GST In India?

For the sake of the diversity in the scales, turnovers, along with purchase/supplies of goods and services. The GST council set a different rate of slabs for different commodities. There are 4 types of GST present in India, listed as follows-

1. SGST- State Goods and Services Tax
2. CGST- Central Goods and Services Tax
3. IGST- Integrated Goods and Services Tax
4. UTGST- Union Territory Goods and Services Tax

The implementation of GST has numerous advantages like uniformity, simplicity, and stability but also has its share of disadvantages.

4. Top 10 Advantages of GST

1- Putting end to the cascading effect of Taxes

The liability to pay taxes for purchasing goods or services, at every step, are absorbed into GST which is levied only on the value of the service or goods being purchased. The value of certain products under the GST rule has increased.

2- Abolishing the hidden layers that fell under taxation

• GST has led to the integration of various taxes like-

1. Central Excise
2. Luxury Tax
3. Service Tax
4. Special Additional Duty of Customs
5. Sales Tax, etc. into one final tax.

• Calculating GST is easy, and thus, taxation has become direct and straight-forward.

3- Input Tax

Apart from the input tax structure to ensure that there is no slumping of taxes, hence, customers pay GST online. While paying output tax manufacturers might reduce the amount of tax they already spent on input, reducing the average burden of taxation.

4- Resourceful Government Administration

The condensed tax system under GST replaced the complicated and lengthy process of tax calculation for indirect taxes. This brought simplicity and transparency, and ease into making information available for all. Resources could be administered quickly and in a straight-forward manner via GST registration.

5- Elevated Threshold For Registration Of Small Businesses

Exempting small traders and service providers, it resulted in the threshold being increased to 20 lakh. Which is beneficial from the earlier exemptions for service providers who were liable to pay the VAT with a turnover of more than Rs 5 lakh. The GST Suvidha Kendra is available for all scale businesses to solve queries.

Tax: Excise
Threshold limits: 1.5 crores

Tax: VAT
Threshold limits: 5 lakhs in most states

Tax: Service Tax
Threshold limits: 10 lakhs

Tax: GST
Threshold limits: 20 lakhs (10 lakhs for NE states)

6- Logistics With Improved Benefits

Before the GST period, warehouses, forced to operate, giving room to increased operating costs, to avoid current CTC and state-entry taxes. With the outcome of GST, there has been an increase in profits for businesses involved in the supply of goods and a reduction in unnecessary logistics costs. GST thus enables to build of a transparent and corruption-free tax administration.

7- A Downfall In Information Being Duplicated

Compliance costs and duplicity of data has seen a downfall since the data has to be registered in many sites for similar goods or services. With the retailer not being able to make sales without the bill hence the cases of income tax evasion will also reduce a lot.

This new system of taxation aids in building a corruption-free and transparent administration with ease. This can significantly help businesses in reducing their transaction costs, and enabling a seamless movement of any goods between states.

8- Easy To Catch Tax Evasion

With GST implementation, it is easy to detect tax evasion. Thus, starting the road to a significant reduction in the generation of black money, which subsequently improves the tax collection process. The black money recovered can then be infused into the various economic schemes for addressing the developing needs of the public.

9- Competitiveness In The International Market

GST’s introduction has been a much-needed step forward in making products offered by businesses cost-effective in the worldwide marketplace. With top competitors already switching to GST, there will be a reduction in the overall cost of products manufactured.

GST regulating the unorganised sector- Construction and textile industries in India have been mainly unregulated. GST brings provisions for online compliances and payments, availing input credit. This has increased the accountability and regulation of these industries after its implementation.

10- Boost To GDP

HSBC conducted in one of its studies that a positive impact of GST would be visible on the GDP of India. It also showed that the GDP could potentially increase by several at least 80bps or 0.8%.

Also Read: GST For Every Business

5. Top 10 Disadvantages Of GST

1- Increase In Operational Cost

With its implementation, the business now calls for employing tax professionals and trains its employees in GST compliance. This results in a rise in the expenses for small businesses, becoming GST compliant while increasing their overhead costs.

2- Being GST-Compliant

GST-compliant invoice issued needs to have the mandatory details such as GSTIN, place of supply, and HSN codes. SMEs, yet to sign for GST have to issue GST-compliant invoices, should be carefully compliant with any digital record-keeping, and file timely returns, thus grasping the nuances of the GST tax regime.

3- Higher Tax Burden

Businesses earlier had to pay excise duty only when their turnover exceeds Rs 1.5 crore, but now the yardstick has reduced to Rs. 20 lakh. A catch plays wittily with the scheme of SMEs with a turnover up to Rs 75 lakh opting for the composition scheme and paying only 1% tax on turnover. While they enjoy lesser compliances, they are unable to claim any input tax credit.

4- Software Purchase Increasing Cost Price

With GST new in the market, businesses have to change their existing accounting or ERP software to become GST compliant. Or buy software that has led to an increased cost of software purchase.

5- Unfriendliness To Service Sectors Like Banks

One of the sectors that play a crucial role in exports is Banking. During the Pre GST regime, a service tax of 14% was imposed on all the banking transactions. However, after GST was introduced, this rate climbed to 18%, which ended up increasing the cost of trades. Mainly when imports or exports have a considerable transaction amount.

6- Mid-Year Launch

The implementation of GST in India during the middle of the year has made it hard for businesses in adjusting to the GST format of taxes. Some of the businesses ran the different tax systems simultaneously, which created a lot of confusion in meeting the compliances. This has resulted in problems in taxation and reporting at the end of the financial year.

7- Harder To Reach Smaller Towns/Cities

Even though GST has helped in reshaping the country's tax system, it hasn't successfully penetrated tie-2 and tier-3 cities. As the entire GST Tracking and procedures are done online, it will be harder to connect with all small-town businesses and merchants.

8- Interstate/Intrastate Connectivity

Many multinational or domestic companies trade and deal with in-between states and union territories. With mandatory GST filing across cities and towns, the registration might become complex and take a longer time.

9- Additional Training Needed

The arousal of newer questions like-

1. How to download a GST certificate?
2. How to file GST returns?
3. How to apply for GST registration?

These have been inevitable since its implementation. Hence, every other business and respective state governments have to extensively train their tax officials and relevant personnel to maintain and supervise the system effectively.

10- Cost-Effectiveness

GST while supporting the Digital India movement, lacks in understanding how much the costing and taxation will affect the common man. When generic expenses and even medical supplies like wheelchairs, crutches, and canes aren't exempt under this tax. It was also nicknamed “Disability Tax” due to such reasons and increased costing for people Below Poverty Line (BPL).

Key Takeaways

The only issues that are being overcome with time are increased costs for the purchase of various software, an increment in operational costs, and making the entire tax system online. This policy has simplified the taxation regimen and will make every common businessman's entry to the Indian and international market an easier process.

Also read:
What is the FMCG Sector & how it works?
Impact of GST on bigger brands

FAQs about GST

Q- How to calculate input tax credit under GST?

Ans- It would help if you found out your eligibility to claim an ITC, Determine the percentage of use in your commercial activity. And the amount of GST/HST you can claim as an ITC for different expenses.

Q- How to calculate GST?

Ans- You need to find the month for which the calculations are being done, note down the due and actual date of filing the return, and calculate the total liability for taxes during the month. Any of the purchases that might attract RCM (Reverse Charge Mechanism) your purchases attracting the same RCM (if applicable) and finally, the ITC or input tax credit.

Q- What is the Difference Between Pre-GST And Post-GST Regime?

Before GST

Many companies, restaurants, organisations, and services had previously provisioned various kinds of taxes that included VAT, Service, Tips, etc. Which made the final billing of any commodity way higher than the average MRP. This also affected small town merchants and consumers who used to deal in wholesale hence intentionally levying heavy taxes.

After GST

This segregation has given the benefit of paying a specific amount of tax for every purchase. ONE TAX FOR ALL was the main aim of this law. The tax percentage varies from 5% for restaurants to 30% for luxury-oriented brands like- Rolls Royce, Emporio Armani, or Gucci.

Refer to the statistic table below:

GENERAL TAX STATS in India after GST

• Electronics, Cinema Theatres, Alcohol- 28% and above
• Public transportation, food, dairy, restaurants, and fuel- 5%
• Handicrafts, textiles, retail, and telecom services- 18%

Q- What Is Exempted From GST?

Ans- The GST exemption list 2020 includes-

1. Poultry
2. Dairy
3. Pulses
4. Cereals
5. Hotels priced under 1000 Rupees
6. Stationary
7. Handlooms
8. Contraceptives
9. Education
10. Healthcare

Q- How many types of GST are there in India?

Ans- The government has introduced 3 types of GST in India namely-

1. SGST- For intra-state goods
2. CGST- For central government
3. IGST- For interstate and integrated goods and service tax

Q- When was GST implemented in India?

Ans- The GST was implemented in India on 1st July 2017 by Prime Minister Narendra Modi. This segregation has given the benefit of paying a specific amount of tax for every purchase. ONE TAX FOR ALL was the main aim of this law.

Q- What is GST number?

Ans- The Goods and Services Tax Identification Number also known as GSTIN is a specially allocated 15-digit number, that came in replacement of TIN(Tax Identification Number). Any businesses registering under GST will be provided this number, which will be a part of the login credentials.

Q- What is the purpose of GST?

Ans- Goods and Services Tax or GST is an indirect tax that is inflicted on the value computed to goods and services in every stage. It helps in mitigating the cascading effect and also in the abolition of multiple taxation layers. GST can help in creating a unified marketing system and ease the process of doing business.