What is GST?

(Goods and Services Tax)

GST stands for goods and services tax, which was first introduced in the Budget Speech
presented on 28th February 2006. It laid the foundation for a complete reform of India’s
indirect tax system. Finally implemented on 1st July 2017 as the Goods and Services Tax
Act, the indirect taxation system thus went through a chain of amendments since its
inception.

GST – Meaning and Scope

Goods and Services Tax is a destination-based, multi-stage, comprehensive tax levied at each
stage of value addition. Having replaced multiple indirect taxes in the country, it has
successfully helped the Indian Government achieve its ‘One Nation One Tax’ agenda.

The tax is levied on goods and services sold within India’s domestic boundary for
consumption. Implemented by a majority of nations worldwide with respective
customisations, the tax has been successful in simplifying the indirect taxation structure of
India.

GST is levied on the final market price of goods and services manufactured internally,
thereby reflecting the maximum retail price. Customers are required to pay this tax on a
purchase of goods or services as an inclusion in their final price. Collected by the seller, it is
then required to be paid to the government, thus implying the indirect incidence.

The GST rates on different goods and services are uniformly applied across the country.
Goods and services have, however, been categorised under different slab rates for tax
payment. While luxury and comfort goods are categorised under higher slabs, necessities
have been included in lower and nil slab rates. The main aim of this classification is to ensure
the uniform distribution of wealth among residents of India.

Advantages of GST

Here in this list, you will find some of the major advantages of GST that have embarked on
the Indian economical ecosystem.

Increase in Foreign Investment

With the implementation of GST, India has become a single market, and foreign investment
has surged in the country. Because of their lower costs, commodities created in India have
become more competitive in the worldwide market, resulting in increased exports. The
implementation of the Goods and Services Tax brings India in line with worldwide tax
regulations, making it easier for Indian enterprises to sell on a global scale.

One Tax System

One of the primary goals of implementing GST was to eliminate various forms of taxes from
the Indian tax structure. Prior to the establishment of GST, there were several taxes such as
VAT, service tax, and so on. With the implementation of GST, all such levies have been
eliminated. There is now only one tax. Although there are several slabs, GST charges for
different commodities vary, which often leads to confusion.

Less Compliance to be Followed

Before the GST act was implemented in 2017, we had several different indirect taxes.
Naturally, there were various compliance rules associated with each of these taxes which
made things complicated. Since the implementation of the new tax regime, there has been
only a single unified return to be filed by the taxpayers. The GST has around 11 returns, only
4 of which are basic taxes that apply to all registered taxpayers regardless of their business
type. For ease of filing these returns, only the main GSTR-1 is manually populated while
GSTR-2 and GSTR-3 are automatically populated.

Simple Access

Anyone sitting anywhere at any time can access the GST portal. This simplifies the filing of
returns. This is extremely beneficial to all types of organizations.

Efficiency in Logistics

GST has replaced various earlier tax systems, such as VAT. As a result, because the business
already pays to the center and state before the transportation of goods, there is no need to pay
state-level taxes during interstate movement, which improves logistics and operations.

Lift for the Lesser Developed States

The 2% interstate levy remains in place, with the majority of production remaining within the
state. However, under the new laws, the tax amount can be distributed across the country,
providing a greater boost to the less developed.
The Make in India Initiative

One of the primary objectives for instituting the Goods and Services Tax was to promote
‘Make in India’ products. The GST facilitates competitive product manufacture. However,
the government has yet to explain how GST contributes to this campaign

Removal of cascading

A system of seamless tax credits across the value chain and across state lines would ensure
that there is minimum tax cascading. This would lower the unintentional costs of conducting
business.

Boosting of Revenue

Consider this: with the new GST in place, there will be no more evasion than there is now
with the current tax regulations. A simplified taxation term will encourage more suppliers to
pay the tax amount, resulting in an increase in revenue levels.

Transparency

The tax administration has begun working without corruption. Transparency has also resulted
from allowing sales invoices to disclose the tax applied.

Disadvantages of GST

Let us see some of the major disadvantages of GST and its effects on the citizens of India.

Increased Costs

GST requires firms to upgrade their current accounting software to ERP or GST-compliant
software in order to keep their operations running. However, firms should keep in mind that
purchasing, installing, and training staff to utilize GST-compliant software can be costly.
Furthermore, the expenses of conducting business have risen significantly for both large and
small enterprises, since they must now hire tax professionals in order to become GST-
compliant.

Increased Software Expenses

Prior to the implementation of the GST regime, most Indian businesses relied on basic ERP
or accounting software to manage their day-to-day operations. These software and solutions
were developed in compliance with the tax rules and structures in place at the time.
Businesses are now compelled to switch to more expensive GST-compliant software or
specialized GST software as a result of the implementation of GST. This indicates that
operating costs will rise as a result of software acquisitions and employee training.

Increased Tax Burden on SMEs

One of the most significant downsides of GST is that it has increased tax burdens for small
and medium-sized firms. This is because, under the previous tax structure, enterprises with
annual sales of more than Rs. 1.5 crores were required to pay excise. However, under the new
tax structure, any company with a total yearly turnover of more than Rs. 20 lakh is subject to
taxation.

This tax system, however, includes a composition scheme for SMEs with a revenue of less
than Rs. 1 crore. SMEs are simply required to pay 1% of their annual revenue under this
system. However, if a company decides to take advantage of this composition benefit, it
cannot claim the input tax credit.

Difficult Migration to Online Filing System

Since the implementation of the new tax system, practically every part of the tax has been
handled online, from registration to filing tax returns. With the advancement of modern
technology, organizations are gradually adopting digital solutions. However, such solutions
for tiny enterprises receive little attention. Although the government’s online system is
incredibly convenient for business owners, it still has a steep learning curve that can be
difficult for small enterprises.

Compliance Burden

Companies must now register with GST in all states where they operate under the new taxing
regime. Businesses must issue GST-compliant invoices, keep electronic records, and file
returns as part of the registration procedure. The expense of all of these services has
significantly raised the strain on the country’s small and medium-sized businesses.
Furthermore, numerous firms are finding it difficult to adjust to GST because all Indian
states’ infrastructure is not ready to embrace e-governance.

Loss in the real estate sector

The advent of the GST has had a significant impact on the real estate industry. It has resulted
in an 8% increase in real estate prices. This has resulted in a 12% drop in property demand.
However, it is possible that this is a short-term trend that may not persist forever.

Standard Tax Rates and Multiple Rates of CESS

Instead of a simpler tax system, India’s GST Council implemented GST with five standard
rates. Many economists believe that this complicates rather than simplifies the structure.

Given India’s many states, each had its own challenges with GST rates. Each wants lower
rates to be implemented for certain items produced. As a result, the GST Council was forced
to introduce numerous tax rates under GST. Furthermore, GST was initially implemented
with a tax rate as high as 28%. Despite this, the GST Council has been steadily lowering
rates, and most items of daily use now fall into the 0% to 5% tax category.

Dual Control

GST is referred to as a single taxation system, but in reality, it is a dual tax because both the
state and the center will collect separate taxes on a single sale and service transaction.

Hurried Implementation of GST

GST was implemented on July 1, 2017, in the midst of the fiscal year. This made it difficult
for firms to swiftly transition to a new tax framework. Following the prior regime’s tax laws
for the first quarter of 2017 and sticking to the newly implemented GST for the remaining
quarters posed compliance challenges.

Income Tax Credit Mismatch

As the tax guard changes, the first few occurrences of application will result in large tax-
paying at the outset. However, when the loop is activated, they will only be allowed to use
the tax input in the latter phases. With such in place, there would be an ITC mismatch during
the initial application of GST Tax.