If you have been keeping up the recent economic developments that swept the country between the time periods of 2014-2018 you must have surely come across the term GST. The Goods and Service Tax is an indirect tax that is levied on most goods and services within the country. It is a relatively drastic step taken by the government since this tax has circumscribed all other taxes and helped to bring them under a collective form. GST follows a comprehensive framework where it is being implemented at all stages of the product and service. It is a destination-based tax meaning it is collected from the end consumer rather than from the point of manufacture or origin.
GST is divided into 5 sub-categories each with taxation in the range of 0%, 5%, 12%, 18% and 28%. The exceptions to this category of taxable products include petroleum, alcoholic products, and electricity which are taxed at varying rates as set by the state government. A rate of 0.25% applicable to rough and semi-precious stones along with 3% for gold. The tax was implemented on July 1, 2017, and replaced all the multiple taxes that were being levied by individual states.
The biggest advantage of GST is that reduces the layering effect of taxes, i.e. multiple taxes being levied on the same product through multiple stages of circulation. GST also led to the registration of businesses on a portal where it is easier for the government to keep track. The benefit of the online procedure is that the ease and simplicity with which operations can be carried out. The compliance return is much lesser than that of VAT and other individual taxes. Earlier taxation system often disregarded the e-commerce industry however with the introduction of GST a clear set of regulatory notice has been set up for e-commerce companies. GST has also played a vital role in improving the warehousing and logistics scenario in the country. Reduction in the amount of taxes that need to be paid at every state border has been reduced and moreover, GST has succeeded in regulating the unorganized sector.
One of the Biggest Disadvantages of GST would be the purchase of software that would make the online recording possible. This has often led to many establishments completely revamping their existing systems. Another issue is the difficulty that small scale businesses face while complying with the new taxation system. Most companies need to hire tax professionals to grasp the system of GST and employees need to be trained to perform under changed conditions which will again lead to an increase in operational costs. GST posed a unique problem when it was introduced in the middle of the financial year, this lead to many companies scrambling to file their returns. Half of the companies followed the new regulations while the other half followed the old existing system which in turn proved to be a hassle for consumers. It is woe for small tax owners as well since it will increase the tax burden on them.
Like all economic policies, GST comes with its own benefits and drawbacks.