Goods and Service Tax (GST) is the first significant step towards indirect tax reform in the last thirty years. It replaces all indirect taxes levied on goods and services by the Indian Central and State governments. Hence, it is considered as the biggest tax reform in India.
However, there are always two sides of a coin. Similarly, Goods and Service Tax (GST) also has its fair share of advantages and disadvantages.
Advantages of Goods and Service Tax (GST)
- After GST, India has transformed into One Nation One Market and One Tax. Now with the unified tax regime, the country waved a good bye to a big pile of indirect taxes.
- GST simplifies the tax system by reducing the number of indirect taxes such as Value Added Tax (VAT), Excise Duty, Entertainment Tax, Luxury Tax etc. and makes it a more transparent tax system. It is easy to understand and cheaper to implement at various levels.
- There will be no hidden taxes under GST and the cost of doing business will be lower which will encourage more economic growth in the country.
- After GST it will be cheaper to buy input goods and services for production from other states.
- GST helps to remove the “cascading effect” or “tax on tax” i.e. everyone is liable to pay tax from purchaser to the end consumer. This taxation is known as “Cascading effect of taxation”. And GST avoids this taxation system as under GST tax is calculated only on the Value Added.
- GST helps in avoiding conflict of dominion as it has Central GST and State GST the tax applicable on goods and services being exported and imported between states in India would fall under an Integrated GST (GST) system.
- Under GST prices will come down which in turn will help companies as consumption will increase.
- GST will also help to curb the flow of black money in the country. As GST is the single tax on goods and services right from manufacturer to the consumer. Credits of input tax on each level are available in a subsequent stage of value addition. To get the previously paid taxes everyone will insist on the invoice (pakka bill) and it will have a paper trail and income tax department can access. Also, PAN and Aadhaar are required to file GST return.
- Ease of doing business –As in the new tax system of India GST, there is single registration, single return, and less paper work unlike in the previous taxation system where business men had to get various tax authorities for the registration, maintain many papers and file different tax returns to different tax authorities.
- Logistic industry plays an important role in supplying goods from one territory to the other which helps grow in manufacturing and consumption. Under GST goods can move freely from one state to another.
Disadvantages of Goods and Service Tax
- There are certain sectors which are exempted from Goods and Service Tax (GST). Though it has a minimal exemption list. For example, GST is not applicable on alcohol for human consumption. Hence, alcohol rates will not get any advantage of GST.
- According to a source, GST has a negative impact on the real estate sector. It would increase the cost up to 8 percent to the new homes and reduce demand by about 12 percent.
- Some retail products used to stand in 4 percent of the tax on them. However, after GST, the garments and clothes became more expensive.
- Stamp duties are still inflicted on States; it has not come under Goods and Services Tax (GST).
- In the earlier taxation system, service taxes on air fares used to range from six to nine percent. But under GST, the rate will exceed fifteen percent and effectively double the tax rate.
- GST has shifted from pen to paper, as it is an online taxation system. Hence, it is difficult for small businesses to adopt it quickly.