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).


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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