GST

Merits and Demerits of Goods and Services Tax Sep 26, 2020 Alankit The Goods and Services Tax (GST) is a unified, consumption-based tax levied by the Government on the supply of goods and services. The GST combines all stages of indirect tax such as manufacture, sale, and domestic consumption of goods and services. GST operates at a national level to put an end to multiple taxes like central sales tax, VAT, service tax, CST, sales tax, etc. which are levied on different products & services. It functions at a national level in order to replace most of the national and state tax systems like VAT, service tax, excise duty, etc. It removes the cascading effect of distorted tax structure. GST is applicable if an individual is involved in manufacturing, e-commerce, trading, or offering services, and their annual turnover exceeds a prescribed limit. Advantages of GST There are various advantages of GST implementation in India listed below to help you understand GST in its entirety. Eliminates multiple layers of taxation: The primary benefit of GST Registration is that it integrates different tax structures like Sales Tax, Central Excise, Special Additional Duty of Customs, Service Tax, Luxury Tax, etc. into a unified tax. It abolishes multiple layers of tax levied on goods and services. Removes cascading effects: Under the current GST regime, the final tax is to be paid by the consumer over purchase of goods and services. However, there is an input tax credit structure in place to ensure the cascading effect that was evident previously is eliminated. GST is imposed only on the value of goods or services. Creates a common national market: With the introduction of GST, there has been a significant rise in India’s tax to Gross Domestic Product ratio that helps promote economic efficiency in the long-run. The comprehensive tax leads to uniformity among different sectors concerning ‘tax on tax’. It eradicates economic distortion and forms a common national market. Ease of doing business: With online GST processes, from registration to return filing, indirect tax compliance has been reduced. This is one of the key benefits of GST that assists companies to carry out their business operations with ease. The major benefit of GST registration for start-ups is that they do not have to get involved in different registrations like VAT, Service tax, excise, etc. Boosts productivity of logistics: Pre GST administration, the logistics industry in India had to maintain various warehouses across states to ensure current CST and state entry taxes are avoided on interstate movements. As a GST outcome, reduced logistics costs have led to an increase in business revenue involved in the supply of goods via transportation. Regulates unorganized sector under GST: With transparent GST mechanism, unorganized sectors can be efficiently regulated. Some particular industries in India like textile and construction are highly unorganized and unregulated. With provision of online compliances and payments, the GST system has become more accountable. Tackles corruption and tax leakages: With the online facility to directly register, file returns, and make payments of taxes online, the whole tax mechanism has become transparent. The online system keeps a strict check on frauds and evasion without having to interact with tax authorities. The shift from traditional GST practices to online modes help build a corruption-free tax administration and is a key merit of GST Registration. While much of the benefits of GST have been listed above, there are a few drawbacks or demerits of GST Registration that companies must know. Let us take a look at problems imposed by this tax reform: Disadvantages of GST Increases costs due to software purchase: Businesses are required to update their existing accounting software to GST software to continue business operations & be GST compliant. This leads to increased cost of software purchase and training company personnel to efficiently utilize the new billing software. Higher Tax Burden of SMEs: Earlier Small and Medium Enterprises were required to pay excise duty only on a turnover exceeding INR 1.5 Crore every financial year. At present, businesses with a turnover exceeding INR 40 Lacs are liable to pay GST under the GST administration. Increase Burden of Compliance: The new GST regime states that companies have to mandatorily get GST registered in all the states they operate their businesses in. This leads to an unnecessary burden on businesses for tedious paperwork processes and compliance. No GST charged on petroleum products: The GST Council excludes petrol and petroleum products under its administration. These products attract other taxes such as central excise duty and value added tax (VAT) levied by states. GST is an online taxation system: From GST Registration to filing GST returns, the Government has made online provision for GST. While businesses are gradually accelerating digital solutions, small companies are not well-versed with evolving and advanced technologies and solutions. It can be challenging for many businesses to adopt a GST structure. GST was implemented in the middle of the financial year: As GST came into effect on July 1, 2017, businesses followed the old GST regime for a few months. Businesses may find it hard to adjust to the new GST structure, and some of them are operational following tax systems in parallel, leading to compliance issues. IT Infrastructure: Being an IT-driven system, GST requires businesses to adopt well-equipped infrastructure and modern tax technology. The e-governance model has been implemented by only a few states as many businesses need to upgrade their IT infrastructure. A lot of states use the manual VAT returns system in their business operations that list for a major demerit of GST. Training of Tax officers: Inadequate training is provided to the Government officers for practical usage of GST software and systems. This is considered to be one of the disadvantages of GST. Conclusion: The Government has introduced a GST system to smoothen tax processes and bring businesses into the formal economy. Being GST-compliant, businesses can experience the merits of having a unified tax system and easy input credits. Stakeholders welcome GST implementation as a new change as it helps boost the economy. Even though GST serves as a historical tax reform in India, there are several downsides that make this tax challenging to implement.

Merits and Demerits of Goods and Services Tax

GST - Goods and Services Tax Merits and Demerits - Alankit

Sep 26, 2020 Alankit

The Goods and Services Tax (GST) is a unified, consumption-based tax levied by the Government on the supply of goods and services. The GST combines all stages of indirect tax such as manufacture, sale, and domestic consumption of goods and services. GST operates at a national level to put an end to multiple taxes like central sales tax, VAT, service tax, CST, sales tax, etc. which are levied on different products & services.

It functions at a national level in order to replace most of the national and state tax systems like VAT, service tax, excise duty, etc. It removes the cascading effect of distorted tax structure. GST is applicable if an individual is involved in manufacturing, e-commerce, trading, or offering services, and their annual turnover exceeds a prescribed limit.

Advantages of GST

There are various advantages of GST implementation in India listed below to help you understand GST in its entirety.

Eliminates multiple layers of taxation:

The primary benefit of GST Registration is that it integrates different tax structures like Sales Tax, Central Excise, Special Additional Duty of Customs, Service Tax, Luxury Tax, etc. into a unified tax. It abolishes multiple layers of tax levied on goods and services.

Removes cascading effects:

Under the current GST regime, the final tax is to be paid by the consumer over purchase of goods and services. However, there is an input tax credit structure in place to ensure the cascading effect that was evident previously is eliminated. GST is imposed only on the value of goods or services.

Creates a common national market:

With the introduction of GST, there has been a significant rise in India’s tax to Gross Domestic Product ratio that helps promote economic efficiency in the long-run. The comprehensive tax leads to uniformity among different sectors concerning ‘tax on tax’. It eradicates economic distortion and forms a common national market.

Ease of doing business:

With online GST processes, from registration to return filing, indirect tax compliance has been reduced. This is one of the key benefits of GST that assists companies to carry out their business operations with ease. The major benefit of GST registration for start-ups is that they do not have to get involved in different registrations like VAT, Service tax, excise, etc.

Boosts productivity of logistics:

Pre GST administration, the logistics industry in India had to maintain various warehouses across states to ensure current CST and state entry taxes are avoided on interstate movements. As a GST outcome, reduced logistics costs have led to an increase in business revenue involved in the supply of goods via transportation.

Regulates unorganized sector under GST:

With transparent GST mechanism, unorganized sectors can be efficiently regulated. Some particular industries in India like textile and construction are highly unorganized and unregulated. With provision of online compliances and payments, the GST system has become more accountable.

Tackles corruption and tax leakages:

With the online facility to directly register, file returns, and make payments of taxes online, the whole tax mechanism has become transparent. The online system keeps a strict check on frauds and evasion without having to interact with tax authorities. The shift from traditional GST practices to online modes help build a corruption-free tax administration and is a key merit of GST Registration.

While much of the benefits of GST have been listed above, there are a few drawbacks or demerits of GST Registration that companies must know. Let us take a look at problems imposed by this tax reform:

Disadvantages of GST

Increases costs due to software purchase:

Businesses are required to update their existing accounting software to GST software to continue business operations & be GST compliant. This leads to increased cost of software purchase and training company personnel to efficiently utilize the new billing software.

Higher Tax Burden of SMEs:

Earlier Small and Medium Enterprises were required to pay excise duty only on a turnover exceeding INR 1.5 Crore every financial year. At present, businesses with a turnover exceeding INR 40 Lacs are liable to pay GST under the GST administration.

Increase Burden of Compliance:

The new GST regime states that companies have to mandatorily get GST registered in all the states they operate their businesses in. This leads to an unnecessary burden on businesses for tedious paperwork processes and compliance.

No GST charged on petroleum products:

The GST Council excludes petrol and petroleum products under its administration. These products attract other taxes such as central excise duty and value added tax (VAT) levied by states.

GST is an online taxation system:

From GST Registration to filing GST returns, the Government has made online provision for GST. While businesses are gradually accelerating digital solutions, small companies are not well-versed with evolving and advanced technologies and solutions. It can be challenging for many businesses to adopt a GST structure.

GST was implemented in the middle of the financial year:

As GST came into effect on July 1, 2017, businesses followed the old GST regime for a few months. Businesses may find it hard to adjust to the new GST structure, and some of them are operational following tax systems in parallel, leading to compliance issues.

IT Infrastructure:

Being an IT-driven system, GST requires businesses to adopt well-equipped infrastructure and modern tax technology. The e-governance model has been implemented by only a few states as many businesses need to upgrade their IT infrastructure. A lot of states use the manual VAT returns system in their business operations that list for a major demerit of GST.

Training of Tax officers:

Inadequate training is provided to the Government officers for practical usage of GST software and systems. This is considered to be one of the disadvantages of GST.

Conclusion:

The Government has introduced a GST system to smoothen tax processes and bring businesses into the formal economy. Being GST-compliant, businesses can experience the merits of having a unified tax system and easy input credits. Stakeholders welcome GST implementation as a new change as it helps boost the economy. Even though GST serves as a historical tax reform in India, there are several downsides that make this tax challenging to implement.