GST is one of the major tax changes in the nation. It replaces several indirect taxes by the Center and States, like excise, VAT, and service tax. It applies to all domestically sold products and services.
Every reform has advantages and disadvantages. Thus, we will talk about the advantages and disadvantages of GST in this article:
Advantages of GST
GST removes the cascading effect of tax
GST, a comprehensive indirect tax, has unified Indirect taxes. It has eliminated the cascading effect of tax that was visible before. “Tax on Tax” is the best way to summarize the cascading tax effect.
Higher limit for registration
Before this change, the VAT system required any company with a turnover of more than INR 5 lakh (in most states) to pay VAT. Please take note that each state has a different limit. For service providers with revenue less than INR 10 lakh, there was no service tax.
The GST regime has increased this limit to INR 20 lakh, exempting many small business owners and service providers.
The composition scheme benefits small businesses
GST allows small businesses to reduce their taxes by adopting the Composition scheme. Many small firms now have less compliance and tax burden thanks to this change in the tax regime.
Simple and easy online procedure
The entire GST process is completely online. It is also very simple, from registration to filing returns. Startups, in particular, have benefited. It is because GST has eliminated the need for them to struggle for different registrations like VAT, excise, and service tax.
The number of compliances is lesser
Earlier, there was VAT and service tax, and each had its reporting requirements. Under GST, you need to file only one consolidated return. As a result, there are now fewer returns to file. There are about 11 returns under GST, of which 4 are total filings that apply to all taxable individuals.
Defined treatment for e-commerce players
Before the implementation of the GST system, selling items online was not regulated. Its VAT legislation was flexible. Let’s examine this instance:
Online retailers that ship to Uttar Pradesh must submit a VAT declaration and include the delivery truck’s registration number. When they did not produce the documents, tax authorities could seize goods sometimes.
Again, governments such as Kerala, Rajasthan, and West Bengal considered these e-commerce companies as facilitators or intermediaries. They did not need them to register for VAT.
The GST has eliminated all these inconsistent treatment policies and perplexing compliances. There are no issues with the transportation of goods between states anymore because the GST has, for the first time, clearly sketched out the requirements that apply to the e-commerce sector. As they are applicable throughout India, there is no complication regarding the inter-statement of goods.
Improved efficiency of logistics
To get around the CST and state entrance tariffs on interstate movement, the logistics sector in India had to maintain many warehouses spread across states in the past. This compelled these warehouses to run at a lower capacity, which caused higher operating expenses.
However, GST eased these limitations on the transportation of products across states.
Due to GST, warehouse owners and e-commerce aggregators have expressed interest in locating their warehouses in strategic locations, such as Nagpur, India, rather than in every other town along their delivery route.
The reduction of superfluous logistics expenditures has already been increasing profits for companies engaged in goods supply through transportation.
GST regulates the unorganized sector
Before the introduction of the GST, specific industries in India, such as textile and construction, were predominantly disorganized and uncontrolled.
But, under GST, there are provisions for online payments and compliances and for claiming input credit only when the supplier has approved the settlement. This has brought regulation and accountability to these industries.
Disadvantages of GST
Increased costs due to software purchase
Businesses must update their earlier accounting or ERP software to one that complies with GST. They can also purchase GST software 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.
Not being GST-compliant can attract penalties.
Small and medium-sized businesses (SMEs) may struggle to understand the nuances of the GST tax system. In addition, they need to issue GST-compliant invoices, adhere to digital record-keeping requirements, and submit returns on time. Their GST-compliant invoice must have mandatory information such as GSTIN, HSN codes, and place of supply.
GST leads to a rise in operational costs
GST alters how one pays taxes. Companies need to hire tax experts to be GST compliant. Due to the added expense of hiring experts, this gradually raises costs for small enterprises.
Businesses also have to teach their staff members about GST compliance, which pushes up their overhead costs even further.
The government implemented GST in the middle of the financial year
Businesses used the old tax system for the first three months of the financial year 2017–18 —April, May, and June. They followed GST for the next nine months after the introduction of GST on July 1, 2017. This created confusion and businesses struggled to adapt to this new system.
Adapting to a complete online taxation system
Businesses have been migrating from pen and paper invoicing and filing to online tax filing and payment. Some smaller companies from smaller towns can find adjusting to this system challenging.
Undoubtedly, change is never simple. The same applies to GST as well. However, this tax system with the motto, “one nation, one tax”, simplifies a lot of issues and will help our economy in the coming years.
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