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Advantages and Disadvantages of GST

Advantages and Disadvantages of GST

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Advantages and Disadvantages of GST

A single rate of indirect tax to be used in the nation is the goods and services tax (GST). It combines all of the current federal and state taxes levied in the nation into a single tax rate. The Constitution (122nd Amendment) Bill, India’s equivalent of the GST Bill, was first proposed in 2014. This was approved in 2016 and given the name The Constitution (101st Amendment) Bill, 2016, by the Rajya Sabha.

Since India is a federal republic, both the central (CGST) and state (SGST) levels of GST would be imposed simultaneously. A common basis will be created and implemented by the Union for both levels. The charge for CGST and SGST will be based on the destination concept.As a result, import taxes will be equal to domestic goods and services taxes, while exports will no longer be taxed at all. In nation, interstate shipments will be subject to an Integrated Goods and Services Tax (IGST). The applicable state’s CGST and SGST will be added to create the IGST. For the purpose of addressing all concerns and suggestions on GST, a GST council would be established.

Additionally, the Centre will levy an extra 1% tax for the supply of products above and above IGST, allocating the revenue generated to the origin states.

The federal government will cover the losses suffered by the states and offer compensation for a five-year period to ensure an effective and successful implementation of the GST.GST would streamline India’s indirect tax structure and lessen administrative burdens. It will bring about a big transformation by establishing a single national market with a single tax system.

Benefits and Limitations of GST

One of the long-awaited fiscal reforms was the implementation of the Goods and Services Tax (GST), but for a number of reasons, it was simply hanging about and unable to get through the barriers for a significant amount of time, leading some to speculate that the reform may never take effect. But all of that is history now, and we were fortunate to see this tax reform through to completion. At this point, 200 days have passed since the introduction of the GST.At this point, it’s important to realise that only because of the many benefits GST offered could it ultimately become a reality. The implementation of GST had some drawbacks, some of which were inherent and intrinsic to the idea of GST, some of which were due to the structure in which it was introduced, and a lot of which were due to the implementation method, which could have been largely avoided. Of course, no reform can be fully proof, and GST is no exception.

Advantages of GST

Increases foreign investment and enhances the environment for investment:

A highly negative view of our country’s taxation system was greatly influenced by tax litigation in certain high-profile instances under the Income Tax Act, and numerous charges were made about its certainty. Due to the nation’s complicated regulatory and bureaucratic structures, investment reluctance was growing. Many international investors believed that it would be better to just shut up and go in this tax climate than to continue dealing with it. GST, however, has given people fresh optimism, and the negative memories of the past are gradually receding.

Simply implementing GST and the government’s earnest attempts to simplify GST have created a strong good view of India’s taxation system around the world. The fact that our economy is growing more quickly, that FDI is expanding, that stock markets are consistently booming, and that the secondary and territorial sectors are contributing more to the national GDP all support this.

Single Authority for Assessing

One significant shift that companies will experience under the GST system is the elimination of the need for them to interact with different taxing authorities. A person would have to contact many tax agencies, such as Central Excise, VAT, Service Tax, etc., just like under the previous tax regime. Under each statute, several registrations were needed, returns had to be submitted, and the same company operations would have to again deal with assessments, appeals, and other processes.

One of the bold steps the government took in implementing GST was to reduce the number of tax authorities from two to one. As a result, an assessee will only need to register with one of the two tax authorities—either the Central Tax Authorities or the State Tax Authorities—rather than both. This will simplify the tax assessment process and eliminate earlier complications.

Enhanced degree of certainty and lower litigation

The primary cause of tax disputes under the previous indirect tax regime was the law’s ambiguity, which left it open to various interpretations, bringing is a positive or advantage for GST adoption. Additionally, the existence of different taxes on the same tax base resulted in inconsistent interpretations from federal and state tax authorities across the nation, which has aided in the proliferation of legal disputes. As most indirect taxes, including Excise, Service Tax, Value Added Tax (VAT), and others are merged under the GST regime, and as the tax base of the GST regime is kept very broad with a significantly reduced exemption list, this will lead to a single, streamlined taxation and decrease litigation in general.

Decrease in price

Businesses are currently unable to use their tax credit payments. For instance, CST Paid was becoming totally cost, traders could not claim credits for excise duty or service tax, service providers could not claim credits for VAT, and different cesses, such as SBC, were just driving up costs for enterprises. All of these cascading taxes would be significantly reduced with the introduction of GST, and as a result, the cost of goods and services should continue to decrease. The costs of products and services can also decrease if interactions are correctly organised and the advantage gained is effectively distributed at all levels. This is in addition to tax reductions. This is a benefit for the business.

Disadvantages of GST

Not in spirit a one-nation, one-tax

If there had been a GST, it would have been ideal if it had only had one legislation and one authority responsible for drafting, overseeing, and regulating the GST law. Contrary to expectations, we currently have 31 laws covering the whole legal system, so it is certainly not one country, one tax.

In other words, Gujarat’s GST law differs from Maharashtra’s GST law, and if a person conducts business in both states, he must register for a separate GST in each state, file separate GST returns, keep multiple state-specific accounts, and have the tax assessed by each state authority separately. This compromises the GST’s basic structure, which was anticipated, to the point where many experts have begun claiming that the GST is not a tax reform but rather a collection of new taxes. It can be a limitation for this biggest history making point.

Various tax rates

There are now 7 basic tax rates and several cess rates available for different commodities and services, which only serve to create unneeded complexity and categorization conflicts. HSN codes continue to be a headache for the industry and commerce, with many people using the wrong coding method and without any understanding of them. This might result in unneeded problems for firms down the road, such tax requests with interest and penalties. Instead of the current system with many tax rates, a single rate or dual rate GST system would have been preferable. This is again a setback or limitation of GST.

High burden of compliance

Another disadvantage to be discussed is the above highlighted point because three tax returns must be filed each month, the compliance rate for GST is exceptionally high. Additionally, if a person conducts business in many states, they must file individual GST returns in each state and get multiple registrations for each.

This GST system has raised the difficulty of compliance and is hurting compliance, especially for small enterprises who cannot afford to spend a lot of money on support services like accounting and taxation, etc.

Requirement of software acquisition increases expense

Businesses must either upgrade their current accounting or ERP software to one that complies with GST or purchase GST software in order to continue operating. However, both solutions result in higher costs for the acquisition of software and employee training for effective use of the new billing software. And this makes a major limitation of GST.

We need to recognise the government’s efforts in bringing in GST and the seriousness that is being shown in simplifying the same after discussing its numerous benefits and drawbacks. At this point, we must understand that everything has advantages and disadvantages, and the tax system is no different. However, businesses who planned and prepared for the GST transition period properly were able to capitalise on the advantages while minimising the disadvantages. Success comes to those who act first, as the proverb says.In the past, there were several various taxes imposed on both the federal and state levels. With the introduction of the GST as a common route, several Central and State Levies, including excise, VAT (save on some items), sales tax, entertainment tax, and others, have been absorbed.

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