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One Year Of GST: Advantages and Disadvantages of GST

IndianMoney.com Research Team | Updated On Tuesday, November 13,2018, 05:44 PM

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One Year Of GST: Advantages and Disadvantages of GST

 

 

It’s a year since that great day when GST was launched across India. Prime Minister Narendra Modi and then President Pranab Mukherjee pressed a button in the Parliament Central Hall on June 30th 2017 at midnight to launch the Goods and Services Tax popularly called GST.

Prime Minister Narendra Modi described GST as a Good and Simple Tax. GST was hailed as the biggest tax reform ever since Independence. It is a single indirect tax for the whole of India. GST reduces the cascading effect of taxes or a tax on tax.

GST is a comprehensive indirect tax charged on the manufacture, sale and consumption of goods and services across India. GST has replaced Central Excise Duty, Service Tax, Special Additional Duty of Customs, Additional Duties of Excise and Customs, VAT, Central Sales Tax, Purchase Tax, Entry Tax, Entertainment Tax, Taxes on Advertisements, lotteries, betting and gambling and State Cesses and Surcharges. GST replaced at least 17 indirect taxes.

One year on let’s take a look at the successes and failures of GST and what’s next. Want to know more on Tax Planning? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

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One Year Of GST: Advantages and Disadvantages of GST

Under GST, goods and services are categorized into 5 Major Slabs. They are 0%, 5%, 12%, 18% and 28%. All essential items fell in the 0% GST slab. Telecom services, IT services and financial services fell in the 18% GST slab.

1. What were the problems small businesses faced after GST?

Let’s take a look at what happened to small businesses after GST. Informal businesses and the MSME industries were in some difficulty after demonetization. This difficulty increased after demonetization.

There were bound to be some problems in the initial months of the launch of GST. Small businesses had to get used to GST and tax compliance.

MSME (Micro Small and Medium Enterprises) are the backbone of the Indian economy. They provide employment to more than 12 Crore people and contribute to 45% of the overall exports of the country. MSME contributes to nearly 31% of India’s GDP.

For years small businesses had escaped the tax net. After GST they could no longer do so. GST enhanced the tax base bringing many small and medium enterprises under the tax net. There was bound to be some pain. Small and medium enterprises had to be tax complaint.

  1. After GST small businesses had to file three returns in a month. They found registration difficult. Then there were complex refund rules.
  2. Small businesses faced a liquidity crunch. Under GST, funds were maintained in an electronic credit ledger with the tax department. A record of all tax liabilities was maintained. As service tax was increased from 15% to 18%, small businesses found working capital blocked to a certain extent.
  3. Small dealers and manufacturers had to pay GST on advances.
  4. Goods transport agencies were having problems providing services to unregistered agencies.

2. How were these problems solved?

  • You must be familiar with the composition scheme. The composition scheme allows small businesses with a turnover of less than Rs 75 Lakhs in the previous financial year, to pay a percentage of their yearly turnover as tax. A small business can file a single quarterly return instead of multiple monthly returns.
  • Under the new GST rules, the threshold was increased from Rs 75 Lakhs to Rs 1 Crore and then Rs 1.5 Crore. This helped small businesses/traders/manufacturers easily fulfill their tax obligations. Under the composition scheme, traders had to pay 1%, manufacturers 2% and restaurants 5%. Sadly there was no Input tax credit benefit.
  • As far as GST advances were concerned, the GST Council decided that taxpayers with an annual aggregate turnover of Rs 1.5 Crores would not have to pay GST on receipt of advances vis-à-vis supply of goods.
  • To solve the problems faced by goods and transport agencies, the GST Council decided that services provided to an unregistered person would be exempt from GST.
  • There was also a major overall of products slotted under GST on 10th November 2017. Around 178 items were shifted from the top 28% GST Slab to the 18% GST Slab and another 35 products were shifted to a lower slab.

SEE ALSO: GST Tax Rates In India

3. Benefits of GST after a year

  • Whenever a country implemented GST, what followed was a period of high prices and high inflation. Some countries even rolled back GST and there was some fear that GST would push up inflation. There was also criticism on a multi-slab GST structure with critics asking for a single slab. The benefits of a multi-slab structure were felt immediately. A multi-slab structure ensured that GST rates remained close to existing rates, keeping inflation in check and also taxes did not rise.
  • Anti-profiteering clause: Another benefit of GST was the anti-profiteering clause. The aim of the anti-profiteering clause was to ensure that Companies did not profit at the expense of the common man. The anti-profiteering clause forces a profiteering supplier to cut prices.
  • Input tax credit: GST had the benefit of input tax credit where at the time of paying tax on output, you get to reduce the tax paid on inputs. Input tax credit reduces the final price of the product, at the wholesaler, retailer and the consumer level. Double taxation is eliminated and the consumers gain in a big way.
  • Application Service Providers (ASP) basically a third-party application, can be used by tax-payers to file GST Taxes with the help of ASP Partners.

4. What are the gains of GST?

A single market for a single Nation: Because of GST you no longer see long queues of trucks at State Borders. GST has created a seamless National Market reducing delays at State Borders and cutting transaction costs for the logistics industry. Businesses can easily manage production, supply, and storage.

A wide tax base: Tax evasion is very difficult with data analytics, invoice matching and the benefits of input tax credit serve as a motivator. More businesses are on GST with registrations crossing a Crore.

India’s GDP slowed to 5.7% for the April-June quarter of FY 2017. This was because of the lingering effects of demonetization. Now, post GST India has retained the fastest growing economy tag.

5. Some problems persist with GST which must be looked into:

  • There are some problems with compliance: There were some problems with compliances as the tax filing system which was put in place had some glitches. These problems are being looked into and a new tax return form is soon coming out.
  • Registration system is quite tedious: Multiple registrations are making GST complex for the industry. This issue must be sorted.
  • Exports are facing a refund problem: The refund mechanism for exporters is facing problems. Problems are with data matching laws and with some procedures. Small Companies have seen working capital rise. These issues need to be sorted out.

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