Indian constitution defines tax almost similarly and has more than twenty-five direct and indirect taxes. There are different taxes imposed by state governments and the central government, separately. So many taxes surely had chances of non-compliance and formulating a single tax across the country was the need of the hour. This imperative necessity gave birth to GST- Goods and Service Tax. So here, this article deals with the advantages and disadvantages of GST.
“Tax” is levied as a compulsory financial bill on individuals or legal institutes by a state or equivalent to meet public expenditure. You are acquainted with various taxes like – income tax, property tax, sales tax, and service tax. Across the globe every country has its set of rules and guidelines for tax payment. This has to be adhered and any non-compliance is a punishable act under their law.
Tax Reforms History
The V.P.Singh Government, in 1986, started tax reforms with the introduction of MODVAT (Modified Value Added Tax). At the same time the proposal of a single common tax named – “Goods and Service Tax” was proposed. This was later approved by the Atal Bihari Vajpayee Government, in 1999. After 17 years of debates, changes, formation of committees, and ups and downs finally the political will power of the Narendra Modi Government launched GST on 30th June 2017.
Goods and Services Tax (GST)
Goods and Services Tax, abbreviated as “GST”, is a comprehensive and multi-staged tax levied on the supply of goods and services. It has replaced multiple taxes levied by state and central governments in India. In other words, GST is touted as one indirect tax imposed on every value addition stage for the whole of India. It is also a destination-based tax as it is collected right from the point of consumption unlike other taxes that are collected from the point of origin.
Goods and services tax has been divided into five different parts for collection of tax with rates of 0%, 5%, 12%, 18%, and 28% respectively. However, certain goods and services have special rates as enumerated in the GST law. The aim was to create a single national market, a common tax base, and to integrate tax laws for the Centre and States. So, the GST law strives for greater transparency, accountability, and improved compliance which would benefit the taxpayers.
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Types of GST
- SGST (State GST): The revenue will be collected by the state governments. Sales within the State will be imposed with this.
- CGST (Central GST): The revenue will be collected by the Central government.
- IGST (Integrated GST): The revenue will be collected by the Central government. Sales from one state to another will be imposed on this.
Advantages of GST (Goods and Service Tax):
- GST has increased the transparency and abolishing complex, cascading taxes (tax on tax), by the single, simple tax.
- Simplified calculation, procedure, implementation, and compliance will lead to increased submission.
- Registered retailers will reap the benefit of doing business at a lower cost, as GST is not considered as a cost to them.
- The cost of thousands of household products will come down, initiating a cycle of increased demand and increased sales for companies producing them.
- The taxation burden on both manufacturing and services will be divided equally. Currently service tax paid on input services cannot be left, against output VAT. To simplify with an example- if a retailer is paying service tax on certain service, the current system does not have any option by which he can ask for a credit, and hence he passes it to the end customer. Under GST he can avail, the input tax credit and need not to burden the end-user; thus eliminating the cascading effect.
- Paperwork or number of compliances to be followed will be replaced by Single paper. Currently excise VAT and service tax need separate returns and separate filling. With GST, a single compliance has to be followed.
- As GST is levied on the final destination, not at various stages, of consumption the economic distortion in the current system will end resulting in the development of a bigger national market.
- The clarity in taxes will empower people and eradicate all sorts of corruption in tax administration. Further, all transactions will be via an electronic medium, enabling minimum physical interactions with tax officials, and any unwanted intervention is impossible.
- Single resolution platform (comprehension IT System), the GSTN, will support for better understanding and execution of every aspect of GST. This system will allocate GSTIN (GST identification number) to traders, stockists, retailers, and manufacturers and in the long run help the government to analyze and plug leakages.
- Will put the country at par with other developed countries that have a superior structured tax system.
- Integrating the country with a single tax regime will improve the collection of taxes and as a result development plans will get the required economic thrust.
- A gradual and steady growth of GDP is overviewed.
- Goods which are manufactured indigenously, with current taxing @ central excise- 12.5%+State VAT-5% to 15%, will be cheaper. The same will happen as GST for them will be @5% or standard rates of 12% and 18% only.
- GST allows taxpayers, refund within 60 days and even release 90% refund, provisionally, in case of exporters within 7 days.
- The refund claims, in GST, are directly credited in your bank account. In case of a delay in releasing the refund amount, interest will be paid.
- GST compliance rating mechanism categorizes taxpayers as per their compliance followed. There are slabs rates on which the percentage of refund claims will be disbursed instantly. Say for example if the taxpayer comes under the rating of 8, his 80% of the refund will be instant.
Disadvantages of GST (Goods and Service Tax):
- Due to GST, The real estate will be affected, as the cost of new houses will increase by 8%, subsequently, the demand will go down by 12%.
- Experts feel that there are changes only in the terminology, like- the CGST and SGST are changed nomenclature of Central Excise/Service Tax, VAT and CST. Broadly speaking GST is similar to existing taxes.
- Problem arises for products and services on which the taxes are below 4% and with GST their tax increases, for example- garments and clothes.
- The current tax rate on flights range from 6 to 9%, with GST coming, the aviation industry faces the challenge as the new tax rate will be over 15%.
- Though the GST has been launched, lack of awareness, procedures, terminologies, and the lack of correct authentic information is creating confusion, irritation, and bad-mouthing of the system.
- Vouched for simplicity, the new system with five tax slabs, ignorance of terminologies, and correctness of claims spread in the ecosystem are making things worse.
- The electronic medium was chosen for this system currently is a hindrance as a lot of the population is computer-illiterate.
- The awareness programs on GST are negligible and only a small portion of the population may be acquainted with correct information. This may lead to red-tapism or even corruption.
- Fear and agony about the new policies of GST may lead to accumulate non-compliance.
- The tax burden on Small Manufacturing Establishments (SMEs) will increase. As per the current taxation system excise duties are levied only if the turnover is over Rs. 1.5 Crores. With GST the same is revised to Rs. 20 lakhs.
- All those companies, units, or enterprises that now have to pay taxes under the GST regime will need professional support. These taxes are always chargeable, thereby increasing their over costs of operations.
- In the current business and tax set-up the use of software, with the required elements of ERPs, tax returns, excise, and VAT incorporated, needs to transform as per GST. This will need a change in software, increased cost of buying the same, and training the staff again.
- The state of utter confusion for the fiscal year 2017-18 is worrisome for taxpayers and businesses. The implementation of GST mid-year will need tax to be paid under the old system for six months and the balance six months under the new taxation.
- The main disadvantage/demerit of GST is, Petroleum products, currently, are out of the scope of GST. Therefore industries dependent on them, like- plastic cannot avail the input tax credit. Similarly manufacturing units operating on petrol and diesel cannot avail input tax credits; hence produce may come with increased prices. The government has not taken any stance on this subject and the situation of uncertainty prevails on this crucial matter.
The Beginning of a new TAX ERA
Any change gets a resistance, this is the law of nature, and this is what can be implied. Small teething problems implementing the new tax regime under GST may soon vanish. Professionals and experts ready with their explanations and support will lubricate the system and GST will start moving smoothly. India will be amongst those few countries which successfully implemented a unified tax system and are reaping the benefits thereon.
Once GST is successfully implemented, India will become an investment hub for doing business with fewer compliances and better mobility. It is your duty to acquire correct knowledge and information on the subject. Similarly, one must take the initiative to share the learning as well. Therefore, your contribution to building an economically strong nation rests on positively taking GST forward.