Indirect taxes are not imposed on the income of each individual rather it is charged on the goods and services consumed by the end-user. In the indirect tax structure, the Centre and State collected and levied taxes separately on goods and services. The tax was collected at different levels of authority as illustrated in the State and Union Lists. The Centre was in charge of imposing a tax on the manufacturer of the goods. The State governments on the other hand levied a tax on the sale of goods. As far as services were concerned, only the centre had the power to collect service tax. Therefore, there was a need to come up with a single unified tax structure to reduce the Cascading Effect of indirect taxes. Goods and Service Tax (GST) replaced Customs tax, Service tax, Central Excise tax, VAT, and Central Sales Tax.

The effect of a multiplicity of tax only went on to increase the cost of goods substantially and made the prevalent system of taxation extremely complex. GST was then introduced in the year 2017 and in this system, the Centre and State both have the power to levy and collect taxes.

What is GST?

  • Goods and Services Tax or GST came into operation from 1st July 2017. Prior to that, the Indian taxation system was very complicated and thus the need for a single unified tax was very much essential.
  • GST mitigated the minute chances of tax avoidance and tax evasion. There was no scope for any sort of litigation or dispute to arise in the new regime. Thus, the replacement of a plethora of taxes proved to be very beneficial for India in the long run.
  • GST is a comprehensive tax levied on services and goods sold within the domestic boundaries of India. It is levied in the market price of the goods and services manufactured in India and it reflects the retail price. The customers are entitled to pay the tax on purchase at the final price. The seller thereafter makes the necessary payment to the government, which explains the indirect incidence of tax.
  • Goods and Services are classified into various tax rate slabs. The luxury goods have a higher tax bracket whereas the necessities are in lower and nil tax slab brackets.

Advantages of Goods and Service Tax

Let us explore the advantages of GST, comprehensive tax reform in India and how does it ensure a win-win scenario for Government and the consumers. Tax reform of such great magnitude can simplify taxation in India.

  • Helps in abolishing the various layers of taxation – GST is successful in integrating the diverse tax lines such as Sales tax, Luxury tax, Central excise tax, service tax, and additional duty on customs into a single unified tax.
  • Minimizes the impact of Cascading Effect of indirect taxes – As per the new GST regime the tax is paid by the ultimate consumer for the services and goods bought. An input tax credit is only a mechanism to ensure there is no slump in the taxes.
  • Increases Productivity of the Logistics sector – The earlier restrictions on the movement of goods within the state has reduced significantly. Previously the companies in logistics had several warehouses to avoid state entry imposed on the interstate movements.
  • Promotes Ease of business – GST was implemented to avoid the difficulties of indirect tax compliance. There were many problems and regulations imposed on the registration of excise customs, VAT, and dealing with higher authorities in tax. The manifold benefits of GST only regulate smoother business functioning.
  • Helps in monitoring litigation and corruption – GST regime goes on to ensure a smooth tax assessment. It aims to reduce litigations by keeping a constant eye on the chances of tax evasion and possible frauds. This has encouraged businesses to become a part of the formal and regulated market network.
  • Regulates and creates a national market – GST has proven to uplift the overall standards of a sustainable economy and economic efficiency. This uniform tax mechanism eliminates any bleak chance of economic distortion. In other words, it helps in creating a unified national market.
  • Smooth and hassle-free Government Administration – In the Indian taxation framework of the past, managing taxes was a complicated affair. In the modern-day GST regime, there are many benefits in form of comprehensive tax rates, a well-connected GST network, and an input tax credit mechanism. In the current framework, administration and accountability of resources are possible. Here the information is transparent and available to the Government for access in a straightforward manner.

Disadvantages of Goods and Service Tax

Every new reform or initiative comes with some disadvantages. Some of the features that require attention to achieve the fullest potential of the GST tax regime are IT infrastructure, the problem of increased compliance, and cost and time to train the tax officers.

Let’s discuss the disadvantages of GST-

  • Increase in cost– Businesses have to purchase GST software or update their software to simplify GST calculations and return filing. This leads to incur the cost of the purchase or update. Employee training is also important for effective use of the software. They have to hire professionals to pay GST & and filing of GST Returns. This majorly affects small businesses.
  • Number of Returns– In GST, businesses have to file many returns some monthly, some quarterly and some annually. Big business units have to file 26 returns in a year, small businesses have to file 17 returns, etc., depending on their turnover and types of business.

Disadvantages are temporary because GST Council monitors implementations on regular basis through the Grievances posted by the businesses on issues faced by them. Over time we will see GST will become Business-friendly tax mechanism.