Advantages and Disadvantages of Goods and Service Tax

Fodder Points for Mains:

  • The goods and services tax, one nation, one tax and one market is a radical step towards India’s transformation into a common market.
  • GST was not just about taxation reform that would help businesspersons by putting an end to tax terrorism, but is a measure that will help in the fight against corruption and black money. 
  • GST is a major tax harmonisation exercise and will significantly reduce the transaction-cost of doing business in India. It will unify multiple taxes into a single tax and reduce compliance and administrative costs in the long-term and do away with levies like Octroi and ensure a more unified market. It will reduce cascading on account of levies like Octroi, purchase tax and central sales taxand make the economy more export-competitive.

How GST will help the common man and economy?

COMMON MAN FRIENDLY

1. Huge number of items are either tax exempt or in 5% tax bracket.
2. Maximum benefits to the poor and the common man.
3. Will ensure that the poor get their due.
4. Level playing field for small traders in any part of the country.

ADVANTAGES FOR TRADE AND INDUSTRY

1. Common procedures for registration, duty payment, return filing and refund of taxes
2. Seamless flow of tax credit from manufacturer/supplier to user/retailer to eliminate cascading of taxes.
3. More efficient neutralization of taxes to make our exports more competitive internationally.
4. Benefit of exemption/composition scheme for a large segment of small scale suppliers to make their products cheaper.

BENEFITS TO ECONOMY

1. To create a unified common National market.
2. To make India a manufacturing hub.
3. To boost investments and exports.
4. To generate more employment by increased economic activity.

SIMPLIFIED TAX STRUCTURE

1. Reduction in multiplicity of taxes+ now leviable on goods and services, leading to simplification.
2. Simpler tax regime with fewer exemptions.
3. Harmonization of laws, procedures and rates of tax across the country.
4. Common system of classification of goods and services to ensure certainty in tax administration.

Disadvantages of GST

  • Small traders may not have access to internet or computers and may be left out.
  • GSTN or IT network for GST, can have privacy and security related issue
  • GSTN or IT network for GST, can be a single point of failure affecting every one across India, if any failure occurs
  • Local dealers have to pay CGST in addition to SGST (earlier they had to pay just VAT).
  • There shall be no differentiation between “goods & services” under GST model, services supply within the state would attract SGST at each stage in the supply chain ,but in the mean-time assesse have to pay CGST also.
  • Introduction of GST model could affect negatively (than positively) to few Industries/sectors.
  • Under the GST Model , the state should face heavy losses in terms of tax collection but they also get compensated on the other hand by the states. Infact some states are of the view that there should not be any time –frame for compensation scheme.
  • It must be noted that non-inclusion of petroleum products in the base of GST will cause considerable cascading. The revenue from petroleum products contribute to 35-40% of indirect taxes in the country, and the cost escalation on that account could be considerable.

Conclusion Points:

All the same, this is an important reform, and both Union and state governments must be complimented for implementing it with a single-minded focus. There could be short-term pains for long-term gains is very appropriate. The much-vaunted productivity gains and growth acceleration may happen only in the long term. To view this as a work-in-progress gives us hope that a roadmap will be laid to reduce the number of rates and bring in real estate and petroleum products within the ambit of the tax.

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