Whenever a change arrives, the opposition is inevitable. So was the case with GST. The new tax regime came in with a lot of promises. Before the arrival of the new tax, there were announcements from various quarters regarding the applicability of the taxes.
It created a reaction among people from the business sector, more than the working class. Today we will definitely find out more about the opposition, but not before looking at the advantages and disadvantages.
GST Advantages and Disadvantages
The biggest tax reform has eliminated many indirect taxes, that were under the center and state government. It is basically levied on both goods and services. Any tax will have its advantages and disadvantages. We will now talk about both facets of the tax.
1] Advantages
- GST has eliminated the cascading effect of the previous tax regime. This comprehensive, indirect tax has brought all indirect taxes under one roof. The Cascading tax can be best described as a ‘tax on tax’. It means that the consumer paid taxes on each and every level of the supply chain.
- The threshold is of prime importance. In the previous regime, we can give the example of VAT. Under VAT any business that had a turnover of Rs 5 lakhs was liable to pay VAT. Service providers were also exempted from paying service tax if they had a turnover of less than 10 lakhs. In the GST regime, the threshold has been increased, thus providing relief to small businesses and service providers.
- The new tax structure has brought a lot of relaxation in norms for small traders. The Composition scheme lets small businesses with a turnover of up to ₹1.5 crore (₹75 lakh in some special-category states) pay tax at a low flat rate on their turnover. The filing procedure is also simple for such traders.
- The filing process is simple and easy. Now, everything is online. Thus, small businesses that have a shortage of staff can breathe easy.
- Under GST, there is only one unified return that needs to be filed.
- There are clear-cut rules for E-commerce operators. Currently, GST laws are uniform for e-commerce brands operating in the country. There is no complication in rules regarding the inter-state movement of goods.
- The logistics industry has benefited from the new tax regime. Earlier, companies had to maintain multiple warehouses across different states to avoid CST and other state entry taxes. However, the restrictions have lessened.
- The unorganized sector has also come under the umbrella of GST. Now, sectors such as real estate and textile have become more regulated.
2] Disadvantages
- The cost of software purchases has increased operational costs. Training of the employees in the operation of such new software also adds up to already rising costs.
- Many small and medium-sized industries are finding it difficult to grasp the concept of GST. They have to invest more in raising GST-invoices, move towards digital record-keeping and also file returns on time.
- GST was introduced in the middle of the financial year. Businesses had to follow the old tax structure and GST for the remaining part of the year. It had to be stressful.
- Small businesses are finding it tough to migrate from pen and paper invoices to system-generated ones.
- Small businesses have to bear a higher tax burden, now that GST is here. Especially the manufacturing sector is reeling under the so-called threat of GST.
So, these are the GST advantages and disadvantages.
States That Opposed GST
Change is not easy to accept and many states found it very difficult to cope with it. It has mostly faced opposition from manufacturing states, like Gujarat, Tamil Nadu, Maharashtra, and Andhra Pradesh. There was opposition from political avenues as well.
Back in June of 2017 when the bill enactment was awaited, several states delayed the matter. Initially, only 24 states passed the SGST Bill. Manufacturing states feared revenue loss, once GST set in.
The central government assured these states, that the government would compensate for their losses for 5 years after the GST regime sets in. The revenue loss for Tamil Nadu alone was projected at 9000 Crores. Tamil Nadu also differed on the opinion on all directives laid down by the new regime.
Few states like Bihar and Kerala currently, are not ready to include petrol and diesel under GST. They basically want the new tax regime to settle, before bringing in more reforms. The government is also taking things easy. It is trying to bring in natural gas and aviation fuel under its umbrella, before touching petrol and diesel.
As of December 2018, opposition-ruled states have opposed rate cuts. Kerala and West Bengal felt that the time was not right for a rate cut.
Even after two years of implementation, many states are complaining over the loss of revenue. However, it is too early to judge. Let us wait and watch the scenario, before commenting further.
What Budget 2020 changed for GST and small business owners tracks how the tax developed.
