The Goods and Services Tax(3): Advantages, Disadvantages, and Challenges.

In the previous article, we completed with the basic features of the Goods and Services Tax(GST) . Today we will be talking about the advantages, disadvantages and the challenges in the implementation of the Goods and Services Tax(GST).

Advantages:

Broadly, there are three types of stakeholders in the process of implementation of GST- The Business and Industry , the government and the consumer. Each of them has multiple advantages post-GST promulgation.

  • For Business and Industry:
    • Reduced complexities in complying to the taxation norms.
    • Reduced overall taxes due to subsumption of multiple taxes of both the centre and states. This would boost profits while also advantage the consumer.
    • A step forward in the agenda of “ease of doing business” as now the investors would be encouraged to invest in India. Major projects like Make in INDIA would get a nudge.
    • Uniformity in taxation and uniform methods through common interface all across the country. This  eases the filing of taxes while avoiding mistaken evasion.
    • One of the most coveted aspect that it establishes is the removal of the cascading effect of taxes. Cascading effect means the situation when a tax is paid on already taxed entity. This led to an increased cost of many products. Now, this could be checked.
  • For Government:
    • Better tax compliance will increase the overall tax collections.
    • Transparency in procedures(due to use of IT platform) will help in checking tax evasion.
    • It is easy to administer due to uniformity all over the country.
    • Due to the dual system of taxation, both the centre and state will be getting their respective revenues.
  • For the consumer:
    • Reduced overall costs of the goods and services due to
      • Removal of cascading effect and
      • Subsumption of multiple taxes into one.
  • Others:
    • Greater investments will increase the GDP of the country
    • Greater employment opportunities with a boost in the manufacturing sector.
    • Co-operative federalism in the form of GST Council.

However, there a few disadvantages as well:

  • Increased monopoly of the centre in governing the taxation.
  • The input tax credit which is given to the intermediaries as a subsidy for complying to taxation norms is said to be paid by the consumers. This is a burden on the consumer.
  • While the goods become cheaper(taxes often go above 20%), the services are said to become more expensive as the GST would be greater than the present overall taxes(effectively 15%) imposed on the services.
  • Many states, particularly, the manufacturing states like Tamil Nadu have contended that promulgation of the GST regime will lead to a huge loss of revenue.
  • If instead of one tax, there is a duality in taxation, then the sole purpose of GST is compromised.
  • There will be an overall lesser collection of revenues in the states which are “goods” oriented, for example, Jharkhand. For the state like Karnataka, services provide a compensation to the loss of revenue of goods but this will not be so for the states like Jharkhand.

Also, there are a few challenges which impede the promulgation of the GST regime:

  • Connectivity and state-of-the-art IT infrastructure is a major roadblock in the implementation of GST. GST Network is crucial for proper implementation of the GST and for this IT infra in the cornerstone.
  •  Deciding on the GST rates is a challenge as different stakeholders suggest different rates. If it is too high, say 25%, then it is considered exorbitant while if it is too low, then the states may object to the revenue loss that they incur.
  • Setting the Revenue Neutral Rate right, so that the revenue loss is lesser or none.
  • Providing the right amount of compensation to the states who incur losses.
  • The staff involved in the whole process of GST imposition must be well trained to gain required competency level.

This article marks the end of GST series. Thank you.

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