Taxation, a major coalition of the Government all around the world to officiate their functioning and implementation has been present in the human civilization since ages. There have been studies into how taxation culture crept in since the ancient times. However, taxation stands for good as it’s the only way Government can provide the Nationals with all the prosperity and the infrastructure.
A new bloke on the town of taxation in India is the proposed GST Tax which itself is a short acronym for Goods and Services Tax. It has passed the legislation and will sermon from the upcoming financial year. We here would look into GST Taxation in brief and deal with its advantages and disadvantages.
Read along for the entry on ‘Top 10 merits and demerits of GST Tax in India.
What’s GST Tax?
GST Tax is perceived as the replacement of all indirect tax levied currently on the goods and services around the nation. It is basically an indirect taxation that will feature a single domain of tax levy at the national level.
It is a consolidated on the basis of the uniform rate of tax and will affix the pay at the end of final destination or point of consumption. The tax will make a coalition between Central and State levels and reform the taxation regimes. It will provide a basic single and cooperative linkup between the Indian markets which in turn will boost the economy as a whole.
Let’s head over and seek the advantages and the disadvantages of the GST Tax down below. Let’s cue on with the advantages at first.
Advantages of GST Tax
- Simplicity at its Best – Goods and Service Tax (GST) will replace the existing form of indirect tax in the nation. It will prove a substitute for the 17 indirect laws pertaining to the nation and will subsidize it with the new GST Tax. That shall come across as a simpler term to envision.
- Boosting of Revenue – Think of it, with the new GST in the nation, there won’t be more of an evasion as what is happening with the current tax laws. Such simpler term of taxation will make more suppliers in a mood to pay the tax amount which in turn marks the boost in revenue levels.
- Lesser cost of Logistics and Inventory – As the GST tax will mark the end of 17 other indirect laws, there won’t be much of logistics and inventory costs as of now. Also, the slow movement across the state levels of goods carrier will be stopped with the transit speed increasing tenfold. As per one of the surveys conducted recently, it has been estimated that the Indians will be able to save almost about Rs 2300 crore which is spent at the various check post at the border of the state.
- Quite an Investment Boost – As is the norm with the current tax laws in India, there isn’t any input on capital goods. But with the new GST Tax laws, one can avail input tax credit on the capital goods. That way, the investment might surge up quite a bit with an expected 6% increase.
- Lift for the Lesser Developed States – The normal rules stay put as the 2% interstate-levy with the major chunk of production kept within the state itself. However, with the change in rules, the tax amount can be dispersed across the nation to offer a greater lift for the lesser-developed
- Standardization – Many countries follow a GST Tax regime and the new tax will make it easy for everyone to understand the bill. People have already started verifying the bills at restaurants and other retail outlets for the right tax. Earlier, there were many cases of people being charged inappropriately and this has ended with GST.
- Transparency and Less Corruption – GST will also lead to less corruption and there will be a significant reduction in corruption as all the money spent needs to be reported for the taxation purpose. Moreover, the retailer would not be able to make sales without the bill hence the cases of income tax evasion will also reduce a lot.
- Cheaper cars and Phones – This advantage is totally for the consumers who are planning to buy car or phones. The overall tax rate has been reduced by at least 2 percent and the car price of most of the cars have been reduced. Another such impact is on phones and Apple recently reduced the phone of the price by as much as 7.5%.
- Boost to GDP – In one of the studies conducted by HSBC, the GST would have a positive impact on GDP of the country and the GDP of the country will increase by at least 80bps which translate to 0.80%. This is surely a great help to the targets set by Modi Government.
- Ease of Starting Business–India has gained position on the scale of ease of doing business and one of the reasons for this is the implementation of GST. This is also attracting foreign investments and more people are now encouraged to start the business.A fewer number of registrations makes it quick and easy to start the business.
- Reduced Burden of Tax–GST has certainly reduced the tax burden. For example, eating out is lot cheaper now. Earlier, the food bill at therestaurant was taxed at 18% but today, if you go out for a meal, the overall tax rate would be only 5%. In addition to this, the government is closely monitoring the situation to ensure that the benefits are delivered to the consumer.
- Easier to Process– It is certainly easy to process GST as the tax is now submitted online. You do not have to visit various government department or banks to submit the tax.
- Inflation– It is also speculated that the implementation of GST will control the inflation and the inflation would not rise for the next couple of years. This is quite evident as the bank’s Fixed Deposit rates are falling continuously which reflects a part of inflation.
- Tax Evasion Easy to Catch– With the implementation of GST, it has become easy for thegovernment to catch the tax evasion. The most certain advantage of this is the reduction in black money and increment in the government tax collection. The money can be infused back into the economy for the development of infrastructure and other public works.
- Cost of Tax Collection– The cost of tax collection has gone down for the government and this is certainly a benefit. Online tax collection has reduced a significant cost for the government and in addition to this, the simplification of the process is another reason why the cost of tax collection has gone down.
- High Threshold of Registration–GST has a higher threshold and under GST, the threshold has been increased from Rs 5 Lakh to Rs 20 Lakh. This means that many small traders are exempted from the GST structure.
- A clear pathway for e-commerce– The GST also defines the pathway for the taxation procedure of e-commerce industry. This was really necessary as it was missing from the previous taxation policies. With increasing dependency on e-commerce, this is certainly a move which is welcomed by all. GST has also reduced the complexities and compliances associated with previous taxation system.
- GST for theUnorganized sector– Unorganized sector was a part which was often left unaccounted for in GDP but with theimplementation of GST the unorganized sector can also be accounted for. There is a provision on online sites to stay compliant with GST in case of unorganized sector.
There remain quite a few disadvantages associated with the GST Tax. We’ll now look onto the other side of the coin of GST Tax with our entry down below.
Disadvantages of GST Tax
- Would impact the Real-State Market – GST Tax would swell negative remarks on the real-estate as perceived, GST will increase the cost of the new homes by 8% which in turn will cease the demand by 12%.
- Old Wine in a New Bottle – According to the experts, terms such as GST which includes CGST, SGST, and IGST is nothing but just a new name in accordance with the existing tax systems. Kind of old wine in a new bottle.
- Costlier Service – The current Service Tax stands at 15% as of now which will increase to 18%-20% when GST is levied. As such many services will be on the costlier side with telecom, airline and banking affected majorly. In fact, insurance and petroleum are also said to be majorly affected by the enactment of GST Tax.
- Complexity for the Businessmen – According to the proposal of the GST Tax, the control on business will be rendered to Central and State Governments with businessmen binding by-laws. As such complexity may arise for many businessmen across the nation.
- Income Tax Credit Mismatch – As the change in tax guard will take place, the first few instances of application would mean high tax paying at the start. That said, they will only be able to exercise the tax input on the latter stages when the loop is exercised. With that in place, there would be ITC mismatch during the early uses of GST Tax.
- Disability Tax – Opposition has called it as a Disability Tax as many of the things related to disabled people which were earlier Tax-Free are now included in GST Taxation. Prior to implementation of GST, brail paper, typewriter, hearing aid and motorized wheelchair were tax-free whereas these things are being taxed now. Opposition have made pleas to roll back the tax on such items
- Expensive Banking and Insurance – On one end, Modi government is trying to give a push to banking services and insurance in India and on another side of the picture, the government has decided to tax banking and insurance service at higher rates when compared to the previous rates
- Impact on Discounts – GST has also had an impact on discount and reward programs as well. The product is being taxed at the rates pre-discount whereas the products were earlier taxed at post discount prices. Most of the companies have also suspended reward programs on temporary basis because of complexities of GST
- Mid-Year Launch – Government has chosen a mid-year launch for GST and this will lead to problems in taxation and reporting during the end of the financial year. Ideally, the government should have launched GST at end of financial year as this would have avoided a lot of confusion during taxation and reporting.
- Registration in the Many States Required–As per GST, the seller would require registering in all the states that it does business in and that would increase the complexity for the seller. The government should have created a provision for centralized registration of State GST as this would have helped many sellers during the rollout.
- Changing Tax Slabs– Earlier the government had a higher tax slab for many products but in a recent revision, the government has changed the tax slabs for the many products. This includes the restaurants as well. The changing tax slab means the higher operational cost for the organizations and it also makes the changes in software complicated.
- Petrol not Under GST– The Petrol doesn’t come under GST and that is one of the major controversial issues. The petrol is taxed at a much higher rate and if the government is rolling out a unified taxation system then each and everything should be taxed under GST.
- Online Taxation– Online taxation system is an advantage as well as disadvantage. Many people are not able to process their taxes and this forces them to reach out to a third party for tax filing purpose. This has increased the overall cost for such small businessman who needs to approach the third party for filing tax.
- Higher Tax Burden for SME– There is a certain tax burden on small and medium enterprise because of this GST. As per the information, earlier, the organization with a turnover of over Rs 1.5 crore had to pay excise duty but now even a businessman with a revenue of over Rs 20 Lakh has to pay the GST.
- Still Unclear about Process– It’s been almost 6 months since the GST has been rolled out and there are people who are still not clear about GST. During the initial phase, the government was taking initiatives in helping people to understand GST but all that seems to be cold now.
GST Tax will be the new regime of Indirect tax in the nation and will seek the end of existing all indirect tax rules. It will schedule a coalition between Central and State Government amidst the cry for better taxation system which GST duly delivered. However, a coin holds two sides, and as such GST has quite a few disadvantages of it’s too. We duly looked into both of them in our above piece. We bid adieu with a promise to be back with more the next time. Adios.