By TBLTeam The Goods and Services Tax, commonly known as GST, is one of the biggest tax reforms in modern India. It changed the way indirect taxes are charged, collected, and paid across the country. Before GST, multiple indirect taxes were levied at different stages by the Centre and the States. GST replaced most of these taxes with a single, unified system.
Like any major reform, GST has its strengths as well as its weaknesses. To understand its real impact, it is important to look at both sides in a practical way.
What Is GST?
GST is an indirect tax levied on the supply of goods and services. It is a destination-based tax, which means the tax revenue goes to the state where the goods or services are consumed, not where they are produced. GST is charged at every stage of the supply chain, but the final burden is borne by the consumer.
In India, GST is divided into three main components:
- CGST (Central GST)
- SGST (State GST)
- IGST (Integrated GST)
Advantages of GST
1. One Nation, One Tax
One of the biggest advantages of GST is that it brought uniformity in the tax system. Earlier, different states had different tax rates and rules, which created confusion and barriers to trade. GST replaced multiple indirect taxes with a single system, making taxation simpler and more consistent across the country.
This helped in creating a common national market.
2. Removal of Cascading Effect
Before GST, taxes were charged on top of taxes. For example, excise duty was levied first, and then VAT was charged on the price including excise duty. This increased the final price of goods.
GST reduced this cascading or tax-on-tax effect by allowing input tax credit. Businesses can now claim credit for the tax paid on inputs, which lowers the overall tax burden and reduces prices in the long run.
3. Simplified Tax Structure
GST replaced many indirect taxes such as VAT, excise duty, service tax, and entry tax. This simplified the tax structure for businesses and made compliance more systematic. A single online portal is used for registration, return filing, and tax payment.
This reduced paperwork and improved transparency.
4. Boost to Business and Industry
GST made it easier to do business across state borders. Earlier, businesses had to deal with check posts, different tax laws, and entry taxes. GST reduced these barriers, improved logistics efficiency, and lowered transportation time and cost.
As a result, businesses can operate more smoothly and competitively.
5. Increase in Government Revenue
GST widened the tax base by bringing more businesses into the formal tax system. With better compliance and technology-driven monitoring, tax evasion has become more difficult. This has helped the government improve revenue collection over time.
Higher revenue allows the government to invest more in infrastructure and public services.
6. Transparency and Accountability
GST is largely technology-driven. Invoices are matched online, and transactions are recorded digitally. This reduces the scope for corruption and underreporting. Consumers can also see the tax component clearly mentioned on bills, which increases awareness.
Transparency builds trust in the tax system.
7. Benefit to Consumers in the Long Run
Although the impact varies by product, GST has reduced prices for many goods and services by removing multiple layers of taxation. Increased competition and lower logistics costs can also lead to better pricing over time.
Consumers benefit from a more efficient supply chain.
Disadvantages of GST
1. Complex Compliance for Small Businesses
Despite being promoted as simple, GST compliance can be challenging for small and medium businesses. Regular return filing, invoice matching, and understanding tax rules require accounting knowledge and technical support.
For small traders, this has increased compliance costs and dependence on professionals.
2. Multiple Tax Rates
GST was introduced with multiple tax slabs such as 0%, 5%, 12%, 18%, and 28%. This made the system more complicated than expected. Classification of goods and services into correct tax slabs can be confusing and often leads to disputes.
A simpler rate structure would have been easier to manage.
3. Higher Tax Burden on Some Services
Under GST, several services became more expensive as they were taxed at a higher rate compared to the earlier service tax. This affected sectors such as telecom, insurance, banking, and hospitality.
For consumers, this meant higher bills for essential services.
4. Initial Implementation Challenges
The introduction of GST faced several technical and operational problems. Businesses struggled with the online portal, frequent rule changes, and delayed refunds. These issues created uncertainty and cash flow problems, especially for exporters.
Although many problems have been addressed over time, the initial phase was difficult.
5. Impact on Working Capital
Under GST, businesses must pay tax at the time of supply and claim input tax credit later. Delays in receiving refunds or credits can block working capital, particularly for small businesses and exporters.
This can affect day-to-day operations and financial planning.
6. Burden on Informal Sector
GST encouraged formalization of the economy, which is good in the long run. However, in the short term, many small and informal businesses found it difficult to adapt. Some were pushed out of the market due to compliance pressure and higher costs.
This affected employment in certain sectors.
7. Not Fully Inflation-Free
Although GST aimed to reduce prices, some goods and services became costlier due to higher tax rates. In certain cases, businesses passed on the increased tax burden to consumers, contributing to inflation.
Price benefits were not uniform across all sectors.
Overall Impact of GST
GST has transformed the indirect tax landscape in India. It has improved efficiency, reduced tax barriers, and strengthened the formal economy. At the same time, it has also exposed gaps in digital readiness, compliance capacity, and policy design.
Like any large reform, GST is evolving. Continuous changes, rate rationalization, and better technology are helping improve the system gradually.
Conclusion
GST is a landmark tax reform with long-term benefits for the economy. Its major strengths lie in uniform taxation, removal of cascading effects, improved transparency, and ease of doing business. For the government, it has created a more stable and efficient revenue system.
However, GST also has limitations. Compliance complexity, multiple tax slabs, and challenges faced by small businesses remain real concerns. The success of GST depends on how well these issues are addressed over time.
In the long run, a simplified GST structure with fewer rates and smoother compliance can make it more effective and fair for businesses, consumers, and the economy as a whole.