GST Benefits – Advantage Advantages and Disadvantages of GST

Tally Solutions |Updated on: September 13, 2022

1. Advantages of GST
2. Disadvantages of GST

GST stands for Goods and Services Tax levied by the Government in a move to replace all of the indirect taxes. The main reason behind introducing GST is to improve the economy of the nation and that is why it is beneficial.

It was introduced to put an end to multiple taxes like CST, VAT, service tax, sales tax, central sales tax which are levied on different products, starting from the source of manufacturing till it reaches to the end consumer which makes the movement of goods and doing business very hard.

Advantages of GST

The study of advantages and five disadvantages of GST shall be tabulated in the following manner which shall help us in understanding about GST in its entirety.

• Wider the tax base, lower the tax rates

Currently, a no. of taxes and duties are being imposed on the same item right from the stage of manufacture until the same is consumed. These are levied in the form of import duty, excise duty, octroi, luxury tax, service tax, VAT, etc. The total of these taxes is around 35% - 40%; while the standard rate of GST is 12 % and 18%. This is one of the key rationales of introducing GST.

• Number of compliances is lesser

With GST, multiple taxes such as VAT, service tax, excise, etc., are unified into a single tax system. This unification results in lesser tax compliances, for example, instead of filing for multiple returns for each of the tax system you need to file a common return in GST. 

• Defined treatment for E-commerce operators

The GST law and regulation has prescribed a defined guideline for e-commerce operators, as well as e-commerce suppliers. This helps clear the ambiguity in e-commerce transactions and pave way for simpler compliance. 

• Removing cascading effects

The foundation of an indirect tax is kept keeping in view the cascading effect and due provisions are framed to lower down the same. However, more the no. of taxes, more the cascading effect.

When we talk of excise duty, service tax or VAT, there are Cenvat credit rules which allow the credit of input tax/duty suffered by the material or service so used. Still, there are cases where the cascading effect is clearly visible but there is no mechanism in the law to deal with it for example: entry tax, octroi, etc.

Almost all goods are subject to these taxes but no credit is allowable as these are collected normally by local bodies. Thus, ultimately these taxes form part of the cost of the product which is further subject to excise duty or service tax or VAT. Thus, the cascading effect do exists. This particularly happens when the same goods or service suffers a no. of taxes and no set-off facility is available.

With the insulation of GST in the tax system, there will be a drastic reduction in the cascading effect as most of the indirect taxes prevailing at present will get subsumed in GST and will also initiate availability of input tax credit.

• Resolution of classification related disputes

One major area of dispute is the “classification of goods and/or services”. It would be interesting to know that there have been cases where the litigation arose on the fact whether a particular item/activity is goods (i.e. excise duty will be levied) or service (i.e. service tax will be levied).

All these problems will come to an end after the implementation of GST. Rationalization of tax structure & simplification of compliance procedure: At present, there are multiple indirect taxes which are levied by different bodies, Central Government, State Government, Local bodies, etc.

All these governing bodies have their separate offices, rules and regulations. An assessee has to move from one office to another for procedural formalities.

Goods and service taxes formal visit into the taxation system has brought in a substantial reduction in these formalities as there would be only two governing bodies namely Centre for CGST & State for SGST. This will save time, money and energy of taxpayers.

• Reduction in duplicity of information and compliance costs

In the present structure, the same information is to be filed at several places for the same goods/service.

As a result, the cost to the assessee is increased and also the duplicity of information. Not only assessees, the overall cost of government is also increased as the same information is being stored at several places which have to be maintained by employing man, money and energy. This ultimately leads to inefficient utilization of nation’s resources.

• Increase in product competitiveness in the international market

With the implementation of GST, in the long run, there will be a reduction in the overall cost of products manufactured in India. This will make Indian products more competitive in the international market.

It is worth mentioning here that many of our top competitors in the international market have already switched to GST. Introduction of GST in India is a step forward in making the product more cost-effective in the international market.

Disadvantages of GST

• Compensation to loss-making States for five years

Central Government will compensate for the loss arising out to States on implementation of GST for a period of five years.

The compensation will be on a tapering basis, i.e., 100% for the first three years, 75% in the fourth year and 50% in the fifth year. This has been done to make the States affirmative towards the implementation of GST.

• Compliance

You need to file multiple returns in a month for every state in which you operate.

• Decision-making process in GST Council

In the proposed GST Bill, one vote has been assigned to each State in the GST Council. As per Government, this has been done to ensure that small states should not lag behind in the GST Council.

Thus, while assigning the weightage to vote, the population has been made the prime criteria. It is worthwhile to mention here that there are certain states which have very less population but their share in taxes is on the much higher side. Such states, though contributing more, will lag behind in the decision-making process taking place at GST Council.

• Not friendly to important service sector like banks

It is much-hyped that GST will bring Indian goods a step forward in the International market. The reasons so given are that the GST will make Indian products cheaper in the long run and thus will promote exports.

In this regard, it is to be noted that the banking sector plays an important role in exports. Whether it is the export of service or export of goods, the role of banks is vital. It is worthwhile to mention service tax @ 14% was levied on the banking transactions pre GST.

Post introduction of GST, this rate has jumped to 18%. This will ultimately increase the cost of the transaction, particularly, in the case of imports and exports where a huge amount is transacted.

The Bottomline:

The implementation of GST will have its own share of advantages & disadvantages. Having said that, it ensures compliance by unifying multiple tax structures that existed before GST. Being a technology-led compliance system, GST brings automation in terms of return filing and other compliance responsibilities, ensuring seamless processes.