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Goods and Services Tax (GST) is one of the biggest tax reform levied on goods and services sold in the country. It is a unified and destination based tax eliminates all the indirect tax, service tax, and VAT.
GST directly affects the running of businesses as well as the consumers in the country. Let’s look at the pros and cons of GST.
1. Eliminate cascading tax effect: GST helps eliminate the tax on tax on all the indirect taxation of goods and services. The initial complex tax system procedures are made easier for businesses.
2. Simple and easy procedures: The entire procedure is simple and businesses can register and file for returns online. You don’t have to spend money hiring professionals to do VAT, excise and service tax for you.
3. Transparent tax system: GST ensures that there is a transparent and corruption-free tax system. The tax regulations are made much easier under the new tax regime making it easy to maintain the transparency of tax payment.
4. Competitive industry: The transparency in the new tax regime makes industries very competitive and eliminate the complex tax procedures.
5. Reduce prices of goods: The initial Indian tax system was complicated and consumers had to pay double for tax on products. GST reduces the dual tax system leading to reduced prices of goods.
6. Composition scheme: Small businesses take advantage of composition scheme by paying low taxes on goods and services. This move reduces tax compliance burden to small businesses with a turnover of RS. 20.
7. Fewer compliances: GST has a unified return reducing the number of returns filed compared to the earlier tax system which had both VAT and service tax and each had its own return and compliance.
8. Improve efficiency in logistics: A simple and well-structured taxation system helps in reducing the logistics costs and encourage more trade among businesses. It improves the market segment and boosts the global goodwill for economic climate.
9. Defined treatment for e-commerce operator: GST has clearly defined all the provisions applicable to e-commerce business eliminating confusion with tax authorities on the movement of goods.
10. Increase GDP: The 18% GST tax rate increases the GDP from 0.5 to 0.7% within two years of implementation. This contributed to decreased taxes on goods.
1. Increased implementation cost: GST compliance and filling require the use of computers, accounting software and a trained GST personnel leading to increased implementation cost.
2. Lack of awareness: Many businesses are not aware of the rules and provisions of the GST compliance processes, filing returns, and billing methods
3. Increase the cost of business: Within the first few months of implementing the GST, you will notice some increase in the overall cost of business although this will reduce with time.
4. Confusion: GST return filling schedule is on July and any implementation in between the financial year brings a lot of confusion as to whether you should follow the old tax system or the new system or even both.
5. Expensive services: 60% of GDP comes from taxes on the service sector and the current average tax rate is 15%. The GST short-term cap rate of 18% makes the services very expensive.
6. Lack of autonomy: GST limits the setup of state taxes to fund special programs. This makes it difficult to get funds to address natural calamities and other social effects in the country.
7. Increase tax compliance burden: Multiple business entities are required to have separate GST registration increasing tax compliance burden.
8. The share of revenues with central government: Some states have a reduced tax revenue and they are required to share their revenue with central government under new GST laws.
9. Reluctant to adopt: Consumers are reluctant to adapt to the new GST system because they’re not sure of the tax benefits and the implementation process.
10. No clarification on tax holidays: The new GST system has no clarification about the tax holiday. It has also increased the operational costs for textile and some manufacturing industries.