Top 10 Advantages and Disadvantages of GST in India
Last Updated on December 20, 2024
GST, or Goods and Services Tax, has transformed the taxation system in India, bringing significant benefits to businesses across industries. With the implementation of GST, several indirect taxes have been removed, and taxation has become simpler, enabling transparency and improved compliance. In this article, you will learn about the advantages and disadvantages of GST and how it is impacting various sectors of the economy.
Top 10 Advantages of GST in India
GST has several advantages for all businesses across India. It has become a landmark in simplifying the tax structure, making it transparent and easier to understand.
Here are the top 10 advantages of GST:
Simplification of the Tax Structure
By replacing multiple indirect taxes with a single taxation system, GST has made the tax simple, easy to understand, and transparent. Before GST, businesses had to give excise duty at the manufacturing stage, VAT at the state level, and service tax on services. Now, all these taxes have been merged with GST, making it simpler and more transparent.
Elimination of the Cascading Effect of Taxes
GST has eliminated the tax-on-tax situation in which taxes paid at one stage were included in the subsequent stages of the base cost. Earlier, excise duty paid on a product was included in the cost at which VAT was charged. Now, GST eliminates this cascading effect of taxes, and the tax is imposed only on value addition.
Uniform Taxation Across the Country
GST has enabled a unified tax system in India by implementing the same tax rates across all states. This benefits businesses operating in different states and reduces complications with easy compliance. For example, before GST, a product could have different VAT rates in Maharastra, Uttar Pradesh and Tamil Nadu. This leads to complex taxation and inconsistencies.
Ease of Doing Business
The implementation of GST has made it easier for businesses to comply with tax regulations. Filing returns through the GST Network (GSTN) has automated many processes, reducing paperwork. For example, a business can now file returns online without having to visit multiple tax offices.
Boost to the Economy
GST has widened the tax base by bringing many informal businesses into the formal economy. For instance, small businesses registering under GST contribute to government revenue, which can be reinvested into public infrastructure, fostering economic growth.
Reduction in Logistic Costs
Before GST, trucks carrying goods often faced delays at state borders due to various entry taxes. Now, the removal of these taxes has significantly reduced transit times and costs. For example, a logistics company transporting goods from Delhi to Kolkata saves both time and fuel costs due to seamless interstate movement under GST.
Encouragement for Small Businesses
Businesses with turnover below Rs 40 Lakh (Rs 20 Lakh for service-providing businesses) have been exempted from GST. Additionally, the Composition Scheme under GST allows small businesses with turnover up to Rs 1.5 Crore to pay a fixed lower tax rate, reducing their compliance burden. For example, a small restaurant opting for the Composition Scheme pays only 5% GST instead of the standard 18%.
Promotes Digital Transactions
GST encourages businesses to adopt digital payment systems since invoices and transactions must be documented electronically. For instance, small traders now use apps and software to manage billing, fostering a digital economy.
Improved Tax Compliance and Collection
The Input Tax Credit (ITC) ensures that businesses declare accurate returns and claim credits on invoices. For example, a supplier selling raw materials must declare the sales correctly so that the buyer can claim ITC, leading to better tax compliance.
Global Competitiveness
GST aligns India’s tax structure with international standards, making Indian goods and services more competitive globally. For instance, manufacturers benefit from reduced costs and uniform tax rates, enabling them to price products more competitively for export markets.
Top 10 Disadvantages of GST in India
Even though GST has significant advantages, it also has a few drawbacks. Here are the top 10 disadvantages of GST in India.
High Compliance Costs
Even though GST requires businesses to maintain detailed records, file multiple returns, and adhere to strict deadlines. This increases compliance costs, especially for small businesses that may lack resources for tax management.
Complex Structure for Small Businesses
Small businesses often find it difficult to understand the different norms of GST. The multiple tax slabs under GST (0%, 5%, 12%, 18%, and 28%) create confusion, especially for small businesses.
Higher Tax Burden on SMEs
SMEs with a turnover of more than the exemption amount have to comply with GST regulations. This increases the operational costs, leading to an increase in expenses. For example, a small furniture manufacturer now incurs additional costs for accounting software and compliance services.
Initial Implementation Challenges
When GST was implemented, there was a lot of confusion and technical glitches that led to complications in the filing process, disrupting the business workflow.
Impact on the Service Sector
In the service industry, the GST rate for services (18%) is higher than the earlier service tax rate (15%), increasing the cost for end consumers. For example, a telecom company that charges Rs 100 for services now adds Rs 18 as GST, which was only Rs 15 earlier.
Compliance for Interstate Transactions
Businesses doing interstate trade have to register in each state where they operate, increasing their administrative burden. For example, an e-commerce seller delivering goods across India needs multiple GST registrations for each state the business is delivering.
Tax on Essentials
Some essential goods and services fall under higher tax slabs, increasing their cost for end consumers. This has raised concerns about the affordability of essential items.
Frequent Policy Changes
The GST Council frequently revises tax rates and policies, causing uncertainty for businesses. For example, changes in GST rates for textiles or restaurants require businesses to rework pricing, leading to confusion and operational challenges.
Limited Awareness Among Small Traders
Small Traders are not aware of the GST benefits. They often face difficulty understanding the compliance requirements. This lack of knowledge creates confusion and distrust in the system.
Economic Disruption During Transition
The transition to GST caused temporary economic disruption, with businesses struggling to adapt to the new system. This affected supply chains and caused delays in operations.
Conclusion
GST was implemented with a motto of one tax-one nation, and it has brought significant changes to the tax structure, eliminating indirect taxes, including excise duty, VAT, & service tax. The advantages of GST include simplified taxation, cost savings, and economic growth. However, there are also a few disadvantages to GST, such as high compliance costs and complexities in return filling. With continued improvements and awareness, GST can truly streamline India’s business ecosystem, empowering businesses to thrive.
