GST has proven to be one of the most historical revolutions in the indirect taxation structure of India. It has subsumed many Indirect taxes such as Value Added Tax(VAT), Service Tax, Entry Tax, Luxury Tax, and the Central Sales Tax (CST), etc., levied by the Central and the State governments. GST applies to both goods and services that are supplied Interstate or Intrastate or even outside India.
However, a change could be both a boon or bane depending upon individual tax applicability and effect. Here are some of the advantages and disadvantages of GST:
Advantages of GST
Creation of Common National Market:
GST aims to create an integrated tax structure with a common market and remove the economic barriers, paving the way for an integrated economy.
Boost to Make In India Initiative
GST gives a major boost to the Make In India initiative of the government of India by making goods and services produced in India competitive in domestic as well as international markets.
Removal of Cascading Effect and Multilayer taxation
In a layman’s language, the cascading effect means charging Tax on Tax. GST is an indirect tax that has brought most of the indirect taxes under one single umbrella. It provides credit in the form of an Input Tax credit(ITC) on tax previously paid to ensure that there is no overlapping of taxes. GST is levied only on the value-added of the goods or services, thus giving a halt to the multilayer taxation structure.
Reduction of Litigation
GST aids in the minimizing of litigation costs under different taxation systems as it establishes clarity towards the taxation assessment and liability. Through documented and revised structure GST provides a seamless flow of credit amongst business units.
Composition scheme for Small and Medium businesses
Under GST, small businesses that have a turnover of up to 1.5 Crore INR can bring down their compliance and tax burden by choosing the composition scheme over the regular structure of GST. They can charge GST at flat rates of 1%, 5%, and 6%.
Simple and easy online access
The whole procedure of GST ( from registration to furnishing of GST returns) is available online and is easily accessible. It has become quite helpful for new businesses especially, as they just have to register on a single portal for all their needs.
Enhanced Efficiency in Logistics
With the implementation of GST, the restrictions on inter-state movement of goods have reduced considerably. Before GST, logistics companies had to maintain multiple warehouses in different parts of the country at multiple locations to avoid state-level entry taxes charged on interstate movements.
Regulation of the Unregulated Sectors
In the pre-GST times, certain specific businesses in India like the textile and the construction sectors were highly unregulated and had loopholes for tax evasion. However, with the implementation of GST, these sectors have been regulated by reducing the burden of tax compliance and simplifying the taxation structure.
Automated procedures with great use of IT
There are simplified and automated procedures for various processes such as registration, return, tax payment, etc and all interaction is through a common GSTN portal.
Benefits to Agriculture and Industry
GST has given more relief to industry, trade, and agriculture through more comprehensive and wider coverage of input tax set-off and service tax set-off subsuming several Central and State taxes in GST.
Disadvantages of GST
Updation of IT Software
Under the GST regime, businesses either need to update their current accounting or ERP software or purchase GST software to prop up their businesses. This leads to an increase in IT expenses to the businesses in terms of procuring the GST software and training the staff for using the software efficiently.
However, Masters India, one of the leading GST Suvidha Providers(GSP) has developed customized GST software and APIs to ease the compliance procedures for different business users.
Increased operational expenses
As we have already discussed that GST has changed the way tax is assessed, business owners require the opinion of the tax experts to remain GST-compliant. However, this has increased the operational expense of the entity as they are required to bear the extra cost of employing tax specialists or hiring consultants.
The increased tax burden on Small and Medium Enterprises (SME’s)
Small and Medium businesses, particularly in the manufacturing sector have confronted various challenges under GST. Before the GST regime, business units having turnover up to INR 1.5 crore were required to pay the Customs Duty. But under GST any taxpayer whose turnover surpasses INR 40 lakhs needs to pay the tax.
Nonetheless, SMEs with a turnover of up to 1.5 Crore INR can choose the composition scheme and pay tax on turnover instead of GST and enjoy lesser compliance. However, the problem is that businesses who opt for a composition scheme will then not have the facility to claim any input tax credit (ITC).
To smoothen the implementation process of GST, the government is trying its best to make several changes through various meetings of the GST Council. The government of India is consistently updating the GST procedures by introducing new and simplified GST Returns and e-Invoicing.