Advantages and Disadvantages of GST
A summary of the advantages and disadvantages of GST
In this post, We will look into the advantages and disadvantages of GST. Let’s look at these sections in detail :
What is GST ?
The Goods and Services Tax (GST), which was implemented in India on July 1, 2017, is an indirect tax collected on the sale of goods and services. It unified several cascading taxes (Cascading taxes refer to a system where taxes are collected at multiple stages of production or distribution) collected by the central and state governments into a single tax structure with four major slabs: 5%,12%,18%, and 28%.
Advantages of GST
The following are the top ten advantages of GST:
- Simplified Tax Structure: GST combined several indirect taxes into a single tax, simplifying the entire tax system.
- Higher Tax Compliance: With a unified tax return process, compliance has grown, reducing tax evasion.
- Greater Revenue Collection: More taxpayers are complying with GST, which leads to higher tax receipts for both the central and state governments.
- Improved Logistics Efficiency: GST has made it possible to transport goods across states, decreasing costs while improving logistics and operations.
- Increased Transparency: The GST’s simple structure improves visibility into taxes paid and collected, reducing corruption in the system.
- Accessible Filing: GST returns can be filed online from any computer or smartphone, increasing compliance through simple access.
- Small Business Convenience: GST makes compliance more manageable for small enterprises, reducing the tax burden on MSMEs.
- Attraction for Foreign Investment: The regularity and transparency of the GST have made India more appealing to foreign investors, hence increasing exports and investment.
- Promotion of Digitization: GST has encouraged companies to switch to digital operations, boosting transparency and operational efficiency.
- Economic Growth: The increased tax revenue and improved interstate trade have boosted the economy, helping all regions, including the less developed states.
Disadvantages of GST
- Increased Operational Costs: Businesses had to switch to GST-compliant software, which increased costs. These expenses include buying and installing new software and training employees. Small businesses also had to hire tax professionals, raising operational costs.
- Higher Tax Burden on SMEs: Previously, only businesses with a turnover above Rs. 1.5 crore had to pay excise duty. Under GST, companies with an annual turnover above Rs. 40 lakh must pay the tax, increasing the burden on smaller enterprises.
- Compliance Challenges: Businesses must register for GST in every state where they operate, and compliance involves issuing GST-compliant invoices, maintaining digital records, and filing returns regularly. This has added a significant burden for SMEs, especially in states with less developed infrastructure.
- Penalties and Fines: Due to a lack of awareness and resources, many businesses struggle to fully comply with GST requirements. This leads to penalties for underpayment or non-payment of taxes, which increases their costs.
This gives businesses a clearer understanding of the drawbacks of GST and ways they can manage these challenges effectively.
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Conclusion
In 2017, India implemented GST (Goods and Services Tax) to simplify taxes, improve compliance, increase revenue, and improve logistics. It also tries to make the tax system more transparent. GST supports small companies, attracts international investment, and promotes digitization. It improves the economy, benefiting both developed and developing countries.
However, there are specific challenges, such as more significant business costs, an increased tax burden on SMEs, penalties for noncompliance, difficulty for the unorganised sector, and some initial troubles. Still, GST is gradually developing and changing India’s tax system.
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