What are the Advantages of GST?

The Goods and Services Tax (GST) is one of India’s most significant tax reforms. Introduced on July 1, 2017, GST reformed a hitherto complex indirect tax system. GST consolidated several central and state taxes into one single tax system. It was mainly designed to ease the taxation process, increase compliance, and integrate the country into a single market. This article discusses numerous advantages of GST, stating how and explaining the Indian economy and the functioning of businesses. 

Simplification of the Tax Structure 

During the pre-GST period, a number of indirect taxes, such as excise duty, service tax, VAT, and customs duties, were present, which businesses had to manage.

Different taxes had different rules of compliance, filing processes, and payment deadlines. GST has made things simpler by integrating all those taxes into one tax regime. Businesses follow a standard process for filing returns, tax payments, and compliance with the law. This simplification has reduced administrative burdens on the system and made it easier for new entrants to come into the market. Among the major drawbacks of the pre-GST tax regime was the cascading effect of taxes where the problem of taxes on top of taxes, usually known as being levied on top of another tax, had resulted in much unproductive work.

For example, businesses are usually taxed on goods, followed by service tax on the services provided using those goods.

This has done away with the cascading effect since it allows for input tax credits. Under this mechanism, business entities can claim credits for taxes paid on inputs and set them off against taxes owed on their output. This has reduced the total burden on businesses as well as their consumers.

Boost to the Economy 

GST has given a much-needed boost to the Indian economy by creating a united marketplace. The GST has removed inter-state barriers by combining various taxes into a single system and enabled smooth movement of goods and services.

The business community can now easily carry out their operations and consumers also benefit from uniform prices at every place in the country.

The increase in transparency and a reduction in tax evasion have improved tax collections, providing the government with more revenue for investment in infrastructure and the public services delivery system. The enactment of GST has subjected more businesses to tax payables by catching so many more businesses under its net, thereby increasing compliance. The very applicability of the GST regime is buttressed by a well-strength IT back-end that demands online return filing and proper records keeping from businesses.  This has reduced the scope for tax evasion and promoted the formalization of businesses, especially in the unorganized segment.

In turn, with each new registration of businesses under GST, the government collects more revenue, which can be reinvested in the economy.

Boosting Start-Ups and Small Scale Enterprises  

GST has been significantly helpful to start-ups and small businesses. A few years ago, different tax authorities used to dominate them, along with various tax rates, which varied from state to state depending upon the workplace. GST has eased this by introducing a centralized system with uniform tax rates.  Also, the Composition Scheme under GST gives rights to small businesses having some turnover below a certain threshold to pay taxes at a lower rate and submit fewer returns. This has reduced their compliance burden and allowed them to focus on growth and innovation.

Transparency and Accountability

GST has brought transparency and accountability, which otherwise was missing in the previous tax structure. The entire process is based on technology, and all the transactions have been recorded electronically, every phase of this product chain can be traced back, which would make it hard for businesses to cheat on taxes. Also, at the consumer’s end, this proves to be beneficial because it can check if those taxes, which were paid by the respective users, have reached the government properly. This has led to more transparency, which has led to a cleaner and very responsible taxing environment.

Reduction in Logistics Costs

GST has dramatically affected the logistics sector. Hitherto, the numerous state taxes at the border checkpoints would take people hours. GST has eradicated such barriers so that goods can easily move across state borders. This has cut down the delivery time and lowered logistics costs for companies. Therefore, firms can optimize their supply chains and transfer the cost advantages to customers. 

Greater Global Competitiveness

GST has made Indian products more competitive in the global market because of an overall reduction in the tax burden on manufacturers. Indian goods under the old system were more expensive than their international counterparts due to the cascading effect of taxes. Through its streamlined tax structure, input tax credits have been allowed, which lowered these costs and thereby made Indian businesses more potent competitors in the global marketplace.

Promotion of Exports

GST has been a blessing in disguise for exporters. Today, the taxation burden on export goods is lower as compared to the pre-GST regime, as exports are treated under the GST regime as zero-rated supplies. Thus, a levy of no tax applies to it. Additionally, exporters can recover all such taxes that were paid on inputs for producing an export good. This has made Indian exports more competitive, thus making the businesses look toward international markets more.

Creation of a Common Market

Amongst the extensive effects of GST, a common market has been created in India. It means that the removal of inter-state tax barriers would permit business houses to operate across different states of India without causing any additional taxes or compliance requirements. The unified market also benefits consumers, as they can get a larger number of goods and services at cheaper prices.  This integration has strengthened the Indian economy and given them a feeling of economic oneness.

Promotion of Digitalization 

The GST regime is based on a robust digital framework, as returns, record-keeping, and payment have to be made online by business entities.

This in turn has encouraged the adoption of digital tools and technologies among businesses, even in rural areas.

The push for digitalization has made the tax system more efficient and overall ease of doing business in the country.

With time, this will evolve to further innovation and growth in the Indian economy.

Support for Initiatives Towards Government

GST aligns with most government policies, such as promoting economic growth and development. For example, GST complements the “Make in India” campaign by reducing manufacturing costs and encouraging local manufacturing. Also, business formalization under GST supports the Digital India initiative where technology should be encouraged to maximize its use in governance. Additionally, the extra revenue from GST provides the government with more resources to spend on social welfare programs as well as infrastructure development. Above mentioned are some of advantages of GST for Indian businesses and taxpayers.

Conclusion  

The Indian economy has seen the introduction of GST as a complete game-changer.  By removing the cascading effect of taxes, simplifying the tax structure, and creating a unified market, it has truly changed the way businesses function and contribute to economic growth. It has also increased transparency, and compliance, and formalized the economy. Reach out to TaxDunia to get your GST filed on time. We also offer valuation, advisory, and business registration services among all.