GST, a comprehensive indirect tax is one of the biggest tax reforms the country has faced. Months after its inception, let us take a look at how this new system fares and what implications does it have on business owners.
Even though there were initial hiccups in the implementation of the system mainly due to technical glitches, reforms were made at the 25th meeting of the GST council to combat these issues. Tax rates were slashed on 29 products and 54 services. Also, it was agreed that the filing process is made simpler.
Any reform is bound to have advantages and disadvantages. Apart from the major advantage of reducing the cascading effect of the tax, GST has several pros and cons as any reform is bound to. So, where does GST stand today?
- Some sectors, like the logistics industry, have been big beneficiaries of GST, as they can now consolidate their warehouses and enjoy the efficiencies from economies of scale
- The lower tax on many products has enabled manufacturers to perform their business transactions more freely and cost-effectively. This has also empowered common man to purchase more and save money on their purchases.
- GST return filing process is simplified and at the same time, any possible revenue evasion is kept in check.
- The online process has been beneficial especially for start-ups as they do not have to run from pillar to post to get the registrations done.
- A higher threshold of Twenty lakh rupees for registration exempts many small traders and service providers.
- As GST is a unified tax system, the number of compliances is less.
- Under GST, small businesses (with a turnover of Rs 20 to 75 lakh) can benefit as it gives an option to lower taxes by utilizing the Composition Scheme. This move has brought down the tax and compliance burden on many small businesses. For businesses that opt for composition scheme, the nominal tax rates vary from 1%-5%, and they need to file a single quarterly return (instead of three monthly returns by other taxpayers)
- It has brought accountability and regulation in industries like construction and textile that were largely unregulated and unorganized.
- Increased operational costs due to software purchase and training of employees for efficient utilization is a cost-wise disadvantage for businesses.
- As GST was implemented on the 1st of July 2017, businesses followed the old tax structure for the first 3 months (April, May, and June), and GST for the rest of the financial year. Businesses may find it hard to get adjusted to the new tax regime, and some of them are running these tax systems together, resulting in confusion and compliance issues.
Change is never easy. As the government is trying to smoothen the road to GST adoption, it is important to be GST- compliant at all times and, wait it out as GST can be a transformational reform in the long run. It is important to take a leaf from global economies that have implemented GST before us, and who overcame initial teething troubles to experience the advantages of having a unified tax system and easy input credits.