Advantages of GST to Governments, Business and Consumers
GST Law & Practice
B.Com 6th Sem CBCS Pattern Notes
Advantages/Benefits of GST
The introduction of Goods and Services Tax (GST) is a very significant step in the field of indirect tax reforms in India. By amalgamating a large number of Central and State taxes into a single tax, it would mitigate cascading or double taxation in a major way and pave the way for a common national market. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated to be around 25%-30%. Introduction of GST would also make Indian products competitive in the domestic and international markets. The introduction of goods and services tax (GST) is called transformative because it is meant to benefit everyone and hurt none.
GST offers a number of benefits to all the stakeholders. Various stakeholders of GST are Governments, and Consumers. Therefore, the benefits of GST can be broadly discussed under the following heads:
1. Benefits to Governments;
2. Benefits for Business; and
3. Benefits of Consumers.
1. Benefits to Governments:
Benefits/advantages accruing to the governments due to implementation of GST can be discussed under the following heads:
a) Expansion of Tax Base: GST by design plans to tax supply of all transactions in goods and services. It also attempts to keep the concessions and exemptions to a bare minimum. The reduction of the threshold limit of turnover of goods and / or services would expand the base for governments to charge GST.
b) Increase in Revenue: The expansion of tax base would automatically result into increases revenue to governments. Further, the amount of non-compliance/non-payment of taxes, which is a common feature in the present Indian tax system, is also likely to get reduced as the compliances are online. Traders or businesses in the unorganised sectors will also now be required to come under the purview of GST once their turnover crosses the threshold limit.
c) Economic Growth: It will boost export and manufacturing activity, generate more employment and thus increase GDP with gainful employment leading to substantive economic growth.
d) Boost to make in India Initiative: Lower cost of production, increases demand will lead to increase supply. Hence, this will ultimately lead to rise in the production of goods. Resultantly boost to make in India initiative.
e) Better controls on leakage: GST will result in better tax compliance due to a robust IT infrastructure. Due to the seamless transfer of input tax credit from one stage to another in the chain of value addition, there is an inbuilt mechanism in the design of GST that would incentivize tax compliance by traders.
f) Streamlining of Administration: Indirect tax administration during pre-GST regime was done through various Acts such as Central excise. Service Tax, VAT, Entry Tax, CST etc. which required different authorities for administration by different. GST offers a good opportunity for governments to streamline and standardize various indirect tax administrative authorities. As the number of legislations under the GST is few, the administration of GST will be convenient for the government.
2. Advantages/Benefits for Businesses:
Advantages/benefits accruing to businesses due to implementation of GST can be discussed under the following heads:
a) Reduction of Compliance cost: Under pre-GST regime, separate registrations were required under Central Excise Act, service Tax Act, State VAT Act, CST Act and so on. The businesses were required to submit periodical returns and payment of duties and taxes under these laws under different tax authorities. Introduction of GST has resulted into registration under one Act, GST Act. Registration and compliance is required under one law instead of multiple laws as was existing earlier which reduces the compliance cost and also saves time.
b) Removal of cascading: A system of seamless tax-credits throughout the value-chain, and across boundaries of States, would ensure that there is minimal cascading of taxes. This would reduce hidden costs of doing business.
c) Reduction in Litigation: GST, with fewer and simplified legislations, will reduce the number of litigations. Further, reduced number of compliance and self-assessment can also reduce the queries and objections raised by the department on day-to-day basis leading to lower number of litigations.
d) Efficient Structuring of Operations: During pre-GST regime, businesses were required to organise themselves and undertake operations in a certain specified manner to optimize the outflow of indirect taxes along with benefit from the concessions and tax exemption schemes. Therefore, businesses were compelled to organise and operate as per the requirement of respective legislations. GST, with its structure neutral effect and uniform tax laws across the country, would offer a chance to businesses to organise and operate as may be operationally feasible rather than organising operations based on the requirements of the indirect tax legislations which varied from state to state.
e) Self-Assessment: GST would offer comprehensive self-assessment procedures without frequent intervention by the tax authorities. Further, automation of procedures and online compliances through self-assessment, the businesses would benefit from reduced intervention from the governmental authorities. However, businesses are subject to audits and investigations by the tax authorities where there is a doubt of tax evasions.
f) Improved competitiveness: Reduction in transaction costs of doing business would eventually lead to an improved competitiveness for the trade and industry.
g) Seamless Flow of Credit: GST will facilitate seamless credit across the entire supply chain and across all States under a common tax base. In other words, the eligible entities may claim input tax credit without any hassle under the common tax base.
h) Boost to Export: Under the GST regime, all taxes paid on the goods or services exported or on the inputs or input services used in the supply of such export goods or services shall be refunded which was not available in pre-GST regime. Hence, GST will boost Indian exports, thereby improving the balance of payments position of our country.
3. Advantages/Benefits to Consumers:
Advantages/benefits accruing to consumers due to implementation of GST can be discussed under the following heads:
a) Possibility of availability of goods at cheaper price: During pre-GST regime, goods had the indirect tax component of around 30-35%. This high amount of indirect taxes had led to increased prices and the consumers were required to pay more. However, with the implementation of GST and because of subsuming of various indirect taxes levied by the centre and state, the rate of taxes has down, the highest rate being 28% for few luxury items.
b) Access to more goods and services at uniform prices: As all the goods and services are charged at same rate of GST across the nation, the consumer can get goods at similar across the country.
c) Relief in overall tax burden: Because of efficiency gains and prevention of leakages, the overall tax burden on most commodities will come down, which will benefit consumers.