The Goods and Services Tax (GST) has served to be an essential reform in the Indian tax structure. Set up with an aim to streamline the overall tax system, GST has introduced several changes throughout the system. Several advantages have been realised with the implementation of the GST, while some cons come with it.
This article focuses on the advantages of GST and the cons that accompany this radical change. Let’s look at them in detail and understand all aspects of GST.
Pros of GST
GST simplifies the tax structure by replacing many indirect taxes with a unified system. This simplification streamlines compliance for businesses, reducing paperwork, easing GST registration online and improving overall tax management.
Uniformity Across States
One of the significant benefits of GST is the promotion of uniform taxation across states. This move eliminates the complexities of varying tax rates in different regions, creating a more integrated national market for businesses.
Cascading Effect Elimination
GST eliminates the cascading effect by taxing only the value addition at each stage of the supply chain. This prevents the accumulation of taxes on taxes, ultimately averting the inflation of prices.
GDP Growth Boost
The introduction of GST is anticipated to spur growth in the country’s Gross Domestic Product (GDP). Its contribution to economic efficiency and a more comprehensive range of growth is highlighted by its function in fostering market cohesion, reducing tax evasion, and enhancing compliance.
The introduction of the GST Network (GSTN), a common online platform, has streamlined compliance procedures. This digital infrastructure facilitates easier filing of returns, tax payments, and claiming input credits for businesses.
Cons of GST
Initial Implementation Challenges
The rollout of GST encountered significant initial challenges, leading to business disruptions. Issues such as technology glitches, confusion about tax slabs, and a learning curve for businesses and tax practitioners created hurdles during the transition.
Complex Tax Slabs
Despite the aim of simplification, the introduction of multiple tax slabs has led to complexity. Critics argue that a simpler structure with fewer slabs would have been more effective and easier to understand.
Impact on Small Businesses
Small and Medium-sized Enterprises (SMEs) encountered grave challenges while adjusting to the new tax regime. Compliance requirements, especially for businesses operating in multiple states, increased operational costs for smaller players.
Increased Compliance Burden
Despite efforts to simplify compliance, businesses still grapple with a complex system of return filings, input credit matching, and GST audits. This heightened compliance burden is particularly challenging for smaller businesses with limited resources.
The initial implementation of GST raised concerns about its impact on inflation. Its short-term effect could include pricing changes under the new tax structure.
GST has proved to be a game-changer in India’s tax system. While it has streamlined taxation, promoted economic growth, and eliminated the cascading effect, there are certain challenges that persist.
Ongoing dialogue and constructive reforms are essential to balance the advantages of a unified tax system and the challenges posed by its complexity. As India adapts to this new tax era, continual refinement will be key to maximising the benefits of GST while mitigating its drawbacks.