advantages of GST

The introduction of GST in the Indian economy was one of the most awaited moves and extensive reforms since independence. It neutralised the cascading effect of various indirect taxes applicable to goods and services, causing a shift in the businesses’ tax planning process. It is an indirect tax introduced in 2017 to streamline the country’s taxation system. Replacing several taxes with a single uniform tax made operations much easier for company owners. However, everything is not sunshine in the rainbows in the new system. In this blog, we will explore both the positive and negative effects of GST on the Indian economy.

The Positive Impact

Below are a few key areas where the advantages of GST have brought about a positive impact on the Indian economy:  Streamlined Taxation System

By replacing multiple indirect taxes applicable to goods and services with a single liability, GST implementation reduced complexity and made compliance easier for business owners. 

Better Tax Compliance

GST is a technology-driven procedure with facilities like online registration, e-way bills, electronic return filing, etc. GST compliance is easier for businesses as the taxation system becomes more manageable, increasing the Indian government’s revenue generation through taxes.

Economic Boost

GST simplifies tax codes, eliminates inter-state restrictions, and removes checkpoints at state borders. As a result, it decreases logistical costs and increases efficiency for the economy. Consequently, it has made the Indian economy thrive, especially in the logistics and manufacturing industries.

Reduced Tax Burden

By eliminating the cascading impact of multiple indirect taxes, GST reduces the tax liabilities for consumers as well as businesses. Consumers benefit greatly from GST through reduced prices of products and services, thanks to the efficient input tax credit mechanism.

Economic Formalisation

GST encourages companies to participate in the formal taxation system, improving transparency, boosting tax collections, and minimising tax evasion cases.The Short-Term Impact of GSTFrom the consumer’s perspective, they must make higher tax payments for most products and services they purchase. Most daily consumables now attract a similar or higher tax rate. Moreover, the implementation of GST has compliance-related costs attached to them. Small-scale traders and manufacturers may witness an increase in their compliance costs. However, in the long run, the GST taxation system brings multiple advantages of GST, thanks to the economic boost it is expected to provide.

The Challenging Impact

Here are a few challenges that GST has posed for the Indian economy:

Initial Challenges: As the Indian government introduced GST in 2017, most SMEs faced trouble adjusting to the new taxation standards, disrupting their business operations temporarily.

Compliance Requirements: While the primary objective of GST is to streamline the taxation system, many businesses find its compliance standards burdensome. When they apply for GST numbers, most find navigating the complexity of GST paperwork and reporting challenging.

GST Impact on Small Firms: GST implementation placed a heavy adjustment load on SMEs, significantly impacting various sectors that earlier enjoyed tax exemptions. Compliance-related costs also increased to a great extent, including expenditures on professional services and technology.

Difficult Adjustment: Various industries, especially logistics and manufacturing, enjoy the advantages of GST. However, others, like textiles and real estate, found adjustment to the new tax structure challenging.

Inflation: GST introduction temporarily increased prices due to shifting tax categories and rates. However, in the long run, it decreased overall taxation.

How GST Impacts the Future?

Regarding the long-term advantages of GST, the government aims at lower tax rates and minimum tax slabs. Countries with GST apply only 2-3 rates to reform their economy. In India, we currently have four gst tax slabs: 5%, 12%, 18%, and 28%, with central, state, and integrated rates. Besides these, cess is also applicable. Although a shift is not expected anytime soon, the government may revisit the rates once it reaches Revenue Neutral Rate (RNR). The GST impact on macroeconomic indicators is bound to be positive for some time, reducing inflation by eliminating the cascading effect of taxes. In the future, the government revenue from taxes may increase, exports may grow, and business may become easier. That is why GST implementation is one of the most significant tax reforms in the country’s history.

GST has greatly impacted the Indian economy since its implementation in 2017. It has formalised the economy and increased compliance by streamlining the taxation system. With major boosts in the logistics and manufacturing industries, it has positively impacted the Indian economy. However, there have been challenges, including temporary inflation, increased compliance requirements, and transmission-related expenses. Despite these challenges, the overall impact of GST is positive, and growth is surely expected in the economy.