What are the merits and demerits of GST?

September 20, 2017, Posted By : Team Yomillio

No denying the fact that the mood, at present, about GST is upbeat. GST has its own share of “naysayers,” as is usually the case when any new reform comes about but the below release from Moody’s Investors Service clearly highlights the over-all positive sentiments about GST.

“Already FDI has seen a substantial increase and read with reforms such as GST, which will help lower the cost and simplifies the complexity of doing business, it is likely that FDI is going to rise further.” – The Hindu.

These are some of the general merits of GST, which is helping drive this Foreign Direct Investment into India:

  • Simplified online procedures for real-time registration, migration, and filing of returns.
  • Helps bring down cost.
  • A Simplified way of doing business.
  • Subsumes around 17 other Indirect taxes.
  • Helps develop a transparent tax administration set-up.
  • The Threshold for GST registration is Rs.20 Lakh unlike Rs.5 lakh under the VAT regime.
  • A Taxpayer under the GST composite scheme (Turnover up to Rs.75 lakh) is charged at a concessional rate of 1% to 5%.  A boon for Small & Medium scale enterprises.
  • Equal split of tax burden between Manufacturing and service.
  • Levied only at the final destination of consumption and not at various points from manufacturing to end outlet.
  • Can avail Input credit of service tax paid on purchases against the service tax on sales.
  • Reduced Logistics cost. The concept of establishing warehouses across states to avoid Central tax & entry tax are things of the past.
  • Facilitates faster & efficient movement of goods.

Now let’s have a look at a couple of points that can be considered as demerits of the new GST tax regime.

1. GST Rates: GST is in its very nascent stage in India and is still going through the throes of growing up. There are 4 different rates plus one for sin and luxury goods as of now and thanks to these different rates, we daily get to hear about the GST council announcing one change or the other. The last announcement by GST Council, if I remember correctly, was about the increase of cess in the midsize and luxury cars.

Solution to this is the rationalisation of rates and after listening to what our Finance Minister had to say, it is clear that we are already on our way. Union Finance Minister Mr. Arun Jaitley recently conceded that as the GST progresses, there will be scope for rate rationalisation, that the standard rates of 12% & 18% can be clubbed together into one. This according to The Economic Times.

2. Implementation Glitches: Take for instance GSTN, the portal, and mainstay IT solution for real-time registration, migration and for filing returns. This biggest network in the world, with 85 lakh registered dealers, faced some technical glitches owing to the last minute rush to file returns, GSTR-3B.

But this problem is being addressed on a war-footing. About 80 officials of Commercial Tax Department (CTO), of different states, had a series of meetings last week with the concerned parties such as dealers, IT experts, and tax consultants for an in-depth understanding of the challenges they are facing.

Business Standard ran a news item today on Infosys, that has developed the IT system for GST,  hopeful of resolving the snags in GSTN by the end of October 2017, on how the IT major has decided to appoint technical teams in each state under a nodal officer to sort out the issues plaguing the network.

What I am driving at is this – Yes, GST does have its advantages and disadvantages, but most of them are on account of teething troubles faced during the implementation phase. To outright term them as demerits would be slightly unjustified.

Such a radical tax reform, one that makes possible the idea – One India, One Tax, needs to be shown some patience, a leeway of time to stabilise itself. After all, Rome wasn’t built in a day, right?

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