GST in India: Advantages and Disadvantages

India's tax system was a puzzle for decades, layered with central excise, state VAT, service tax, octroi, entry tax, and a host of local levies. Each transaction, whether the sale of a product or service, often came with multiple taxes. Businesses thus had to spend more time figuring out compliance than focusing on core growth. Consumers too bore the brunt of hidden costs in the garb of taxes, with little clarity on what they were actually paying for.

By 2017, it was clear that the old system was slowing down a rapidly evolving economy. Multiple tax points meant longer logistics, inconsistent pricing across states, and a significant chunk of the informal sector outside the tax net. Reform was overdue for transparency, efficiency, and creating a true national market.

That's why GST arrived on July 1, 2017. The Goods and Services Tax popularly known as GST in India- replaced the old structure with a unified, modern approach to indirect taxation. The impact was immediate and far-reaching. Suddenly, both business owners navigating compliance and everyday taxpayers tracking prices were part of the same conversation.

However, as with any sweeping change, the advantages and disadvantages of GST quickly became topics of lively debate. Does GST deliver on its promises? What's working, and what needs fixing? Here's a closer look, with the benefit of hindsight and examples that matter to businesses and individuals.

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Understanding GST 

The intent behind GST was to simplify the tax regime, remove the pain of double taxation, and create a unified national market. Under GST, there are four main tax slabs: 5%, 12%, 18%, and 28%, with certain essential items either exempted or taxed at lower rates. GST is destination-based, meaning the tax is collected where the goods or services are consumed, not where they originate. It's administered jointly by the Centre and the States, with CGST (Central GST), SGST (State GST), and IGST (Integrated GST) being the main types.

But as anyone who's tried filing a GST return or tracking price changes at the supermarket knows, the system isn't without its challenges. A balanced view helps to break down the advantages and disadvantages of GST and see how the reform stacks up in real-world scenarios.

Additional Read: List of Documents Required for GST Registration in India

What are the Advantages of GST? 

Let's start with the upside. The advantages of GST have been widely discussed in policy circles and business forums. Here are the main benefits that have become evident:

1. Simpler Tax Structure 

The first and most obvious benefit is bringing all indirect taxes under one system. For years, businesses juggled multiple registrations, returns, and compliance requirements. GST in India replaced a patchwork of taxes with a single, streamlined process, providing relief for small and large businesses.

2. Elimination of Cascading Taxes 

Before GST, there was a tax on tax—excise on top of service tax, VAT on top of excise, and so on. This cascading effect inflated costs for everyone. However, with GST's 'input tax credit' mechanism, businesses can set off the tax paid on inputs against their output liability, ultimately lowering costs across the supply chain. In other words, if a business pays tax on the raw materials it purchases, it can deduct that amount from the tax it collects on the sale of its products.

3. Increased Transparency

GST is technology-driven. Every invoice is tracked through the GST portal, and returns are filed online. This digital trail reduces the manipulation and tax evasion, making the system more transparent and fair for taxpayers and authorities.

4. Boost to the Economy 

By creating a single national market, GST in India reduced trade barriers between states. This has facilitated smoother interstate movement of goods and promoted the growth of e-commerce. A uniform tax rate makes it easier for businesses to expand nationwide, offering a promising future.

5. Benefit for Consumers 

Consumers benefit from lower prices and better transparency when the system works as intended. With the reduction in hidden taxes, the overall tax burden on many items has come down, although this is not always straightforward.

6. Ease of Doing Business 

The World Bank's "Ease of Doing Business" rankings reflect improvements since the rollout of GST. For many small businesses, the move to a single tax system and standardised procedures has made starting and running operations less cumbersome.

7. Improved Tax Compliance 

Automated processes and simplified returns encourage more businesses to come under the tax net, broadening the base and improving government revenues.

What are the Disadvantages of GST? 

No reform is without its challenges, and GST is no exception. The disadvantages of GST have come into sharper focus as businesses and individuals have adapted to the new system.

1. Technical Glitches and Compliance Burden 

The GST portal has seen its fair share of teething troubles. Filing returns, reconciling invoices, and claiming refunds can still be daunting, especially for small businesses lacking dedicated tax teams.

2. Increased Operating Costs

While GST was designed to simplify taxes, many businesses, especially SMEs, have faced higher costs due to increased compliance needs, new software, and the need to hire consultants to navigate the system.

3. Classification Issues

Goods and services are taxed under different slabs. Misclassification is a common complaint, leading to confusion and sometimes disputes with tax authorities. The multiple rate structure can create ambiguity and unintentional non-compliance.

4. Impact on Working Capital 

Businesses are required to pay GST at the point of supply, even before payment is received from clients. This can strain working capital, particularly for smaller enterprises with limited cash flow.

5. Mixed Impact on Prices 

While some goods and services have become cheaper, others have seen prices rise due to higher rates under GST. The claim that GST would reduce the overall tax burden hasn't always played out evenly across sectors.

6. Exclusions and Complexity 

Key sectors like petroleum, alcohol, and real estate remain outside the GST net. This complicates the tax structure, with businesses still dealing with multiple levies.

7. Frequent Changes 

Policy tweaks, rate revisions, and amendments have made GST a moving target. Businesses have had to stay on their toes, updating processes and systems to keep up.

Looking back, GST in India is a watershed moment in the country's economy. It has delivered a much-needed overhaul of the tax system, bringing simplicity, transparency, and greater efficiency for many. The advantages of GST—from unified markets to reduced cascading taxes are significant and visible, especially for those who operate across state lines or in multiple sectors.

Additional Read: Tax Guide for Investors & Traders in India | Mirae Asset

At the same time, the disadvantages of GST cannot be ignored. Compliance remains a hurdle for smaller businesses, and the technical side of GST still needs work. The system's complexity, frequent changes, and sectoral exclusions mean that some old challenges linger.

As with any significant reform, GST is evolving. Policymakers are fine-tuning processes and responding to feedback from the ground. For business owners and taxpayers, the best approach is to stay informed, leverage technology for compliance, and seek expert help.

Ultimately, the journey to a truly seamless tax system is ongoing. The hope is that as GST matures, its benefits will outweigh the drawbacks, helping India's economy grow and making tax compliance a little less daunting for all.