Advantages and Disadvantages of a GST over VAT

After about 17 years in the planning stage and after months of deliberation and negotiation with state governments the NDA government approved the GST in 2016, effective from 1st July, 2017. The prices of most of the products have been reduced, which resulted in boosting the economy.  It also encouraged consumer purchasing behavior. 

The many taxes that were previously levied on various commodities and services have been replaced with the GST, a combined tax. The central excise duty, service tax, entertainment tax, and VAT (value-added tax) are a few examples which have been replaced by one single GST. Every year on the first of July, GST Day is observed.

GST V. VAT

VAT or Value Added Tax was introduced on 1 April, 2005 replacing the Sales Tax.It was put into effect nationwide, with the exception of the Andaman and Nicobar Islands. All revenue earned from the VAT was the revenue of the state government. This is the reason why state governments had different VAT rates and different regulations which need to be complied by consumers. The major issue with the implementation of the VAT was that the cascading effect came into play. This means that at every stage in the supply chain, the buyer had to pay tax on the amount which includes the tax paid by the previous buyer. This means on every stage tax need to be paid.

Now, with the implementation of the GST, goods or services will be taxed in different tiers in a way that the tax burden is significantly lower on any single buyer. The Government has made slabs for different goods and services and it varies with each level of production. Moreover, the tax charged for  every product or service is divided in CGST and SGST. 

The CGST revenue goes to the central government and the revenue from SGST goes to the state government which results in an equitable distribution of revenue between central government and state government. The objective of GST is to drive India towards becoming an integrated economy by charging uniform tax rates and eliminating economic barriers, therefore, making the country a common national market. Moreover, GST includes tax on services also. It has a combined service tax also.

Advantages of GST:

  • GST has brought uniform tax policy across the country, making it a one single marketplace. The same goods and services procured in any state will have the same tax rate
  • GST eliminates the illegal practices in cases of transportation of goods like about 40 percent of the time taken for the transport of goods was spent in clearances at state border check posts. This was exploited by middlemen, and corruption was widespread. GST makes one single compliance mechanism and quicker delivery time.
  • GST also helps in eliminating the complications in the tax structure. Earlier, in cases of inter-state manufacturing, manufacturer were to sell products to a wholesaler in a different state, the transaction would be subject to the Central Sales Tax (CST) and other taxes imposed by the state governments (LBT) which means that the manufacturer would need to comply with the taxation system in both the states. 
  • It combines all indirect taxes, thus, reducing burden on the taxpayer.
  • It would also reduce the import and export duty.
  • Over half the items in the CPI basket have been placed in the zero tax slabs. As a result, essentials like food, cereal, and veggies won't be charged. The threshold for GST registration is greater.

Disadvantages of GST:

  • The GST council had given much importance to the informal sector rather than to the large enterprises.
  • The additional cost of purchasing software that could assist in the GST installation process has resulted in higher operating costs for many businesses. To comply with the tax laws, they would have to recruit GST experts, which would need additional spending on software rental. GST on the housing market has led to increase in prices of real estate which resulted in a decline of its demand.
  • A GST levy is applicable to any legal services provided by a lawyer or law firm to a business entity having a combined annual income of at least Rs. 20 lakhs. When a senior advocate Over Rs 5 lakh was earned annually (in the majority of states).. Additionally, service providers were excused from paying service tax if their yearly income was less than Rs 10 lakh. Offers legal services to another advocate or firm of advocates, GST on those services is also due. For example: If a corporate lawyer in Gurgaon, corporate lawyers in Noida or a real estate lawyer in Mumbai provides legal services to a business entity  with aggregate turnover of Rs. 20 Lakhs, then GST is chargeable on them. 
  • The hardest choice was to implement the GST, because changes are never simple. The administration is still working to fix the GST's flaws by making the required adjustments.

A GST levy is applicable to any legal services provided by a lawyer or law firm to a business entity having a combined annual income of at least Rs. 20 lakhs. When a senior advocate Over Rs 5 lakh was earned annually (in the majority of states).. Additionally, service providers were excused from paying service tax if their yearly income was less than Rs 10 lakh. offers legal services to another advocate or firm of advocates, GST on those services is also due. For example: If a Corporate Lawyers In Gurgaon, Corporate Lawyers In Noida or a Real Estate Lawyers In Mumbai provides legal services to a business entity  with aggregate turnover of Rs. 20 lakhs, then GST is chargeable on them.

The hardest choice was to implement the GST, because changes are never simple. The administration is still working to fix the GST's flaws by making the required adjustments.

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