GST, or Goods and Service Tax, is not a new term for us. It has been introduced and is known to be the single tax on the supply of services and goods. It is taken from consumers to manufacturers. GST is a form of indirect tax for the entire nation that makes India one common market.
This biggest tax reform on the nation has been imposed by the state and Centre. There are multiple advantages and disadvantages of GST, which we will find out in this blog. This reform started on 1 July 2018 and has become one of the biggest tax reforms in India.
Benefits of GST reform
Eliminates the effect of tax
GST is a form of indirect tax primarily designed to bring all forms of tax under one roof. One of the prime objectives of GST was to reduce the cascading tax effect. Earlier, people had to pay tax in several steps, which under the GST reform will be taken as one single amount.
Registration threshold is high
Before the act started, businesses with over 5 lakh turnover had to pay VAT. With the GST regime, this threshold is increased to 20 lakhs, where small business traders and service providers are under the exemption.
Simple online procedure
The entire GST registration procedure is available online, which makes it very simple to use this. This is extremely beneficial for every start-up as they do not have to do much legwork. They don’t have to get several registrations like service tax, excise and VAT.
Uniform tax structures and rates
GST reform will make sure to eliminate indirect tax structures and rates. As it is extremely common throughout the country, using the GST logo, businesses will be able to create certainty. It means that GST will help businesses to pay neutral tax regardless of the business place.
Reduced transactional costs will eventually become beneficial for businesses as it improves the competitiveness of industries. According to the World Bank, it is believed that implementing GST. with inter-state check-post can boost competitiveness, especially in the manufacturing sector of India,
Improved leakage control
One of the major features of GST is improving tax compliance with remarkable IT infrastructure. As there will be a gradual transfer from one stage to another in the chain, it will help everyone in the chain comply with the rules. The entire design of GST ensures controlling leakages and incentivises tax compliance.
One of the top features of GST is decreasing the government’s cost of tax revenue collection. This will therefore have better efficiency.
Good for exporters and manufacturers
One of the prime objectives of GST is to sum up the State and Central taxes, it is believed to have a cost reduction of local services and manufactured goods. This will certainly have an impact on improving competitiveness in the International market along with becoming a plus point for export companies. Maintaining uniform tax processes and rates throughout the nation can reduce the cost of compliance.
Transparent tax for goods and services
As there will no longer be indirect tax collection from State and Central, it will have a significant impact. Which the GST act, whether it is a consumer or a manufacturer, there will be one tax. This would bring transparency and makes sure everyone is equal and remains on the same page.
Drawbacks of GST reform
Not complying with GST can result in penalty: Medium and small size enterprises might not be able to understand the nuances of the GST regime. They require issuing GST-compliant invoices, maintaining digital record-keeping and issuing timely returns. This will be a mandatory requirement. Otherwise, there can be bad consequences.
Increase operational cost
There is no denying the fact that GST has changed the taxation method. It will now require businesses to hire tax professionals, which will require them to invest more.
Small business enterprises might have higher taxes
Small businesses that are mostly into manufacturing will be facing difficulties with GST. Before this act came into action, businesses with more than 1.5 crores had to issue excise duty. However, now any business will have to issue GST and pay.
This new reform will require businesses to have an understanding of GST. Undeniably, there are multiple advantages, there are disadvantages as well. TDS on GST will also be deducted at a 2% rate on the payments that are made to suppliers of the taxable services or goods. It requires businesses to have the right workforce to take care of the GST in order to maintain the tax file and stay away from consequences.
One of the significant objectives of GST is to pay taxes at every stage and add value from manufacturing to consumption. It is a tax on value addition. However, this reform has led to making it tough for consumers in several manner. Increased GST on milk and other dairy products, which consumers require on a regular basis, can become a burden for many. Through this reform, businesses will be able to harmonise and simplify the indirect tax regime in the nation.