GST tax system: Pros and Cons

GST stands for goods and services tax. It is indirect tax lavied by the government on various goods and services.

Salient features of GST system -

1. The GST taxation laws will put an end to multiple taxes like excise duty, CST(central sale tax), VAT, service, luxury and entertainment tax among others.
2. GST is an inclusive tax and will replace a number of other indirect taxes currently applicable in India.
3. The GST has two components

• Central GST(CGST) -which will be lavied by central government
• State GST(SGST) - which will be lavied by state government
• Apart from them IGST(the integrated goods and services tax) is charged on interstate transfer of goods.

How does it work(GST)?

• It is single tax on the supply of goods and services right from the manufacturer to consumer. Credits of input taxes paid at each stage will be available in the subsequent stage of value addition. Ita means that GST is a tax only on value addition at each stage.
• Let’s assume, when Manufacturer “A” sells his goods from Gujarat to Haryana, he is liable to collect both Excise Duty and Central Sales Tax at the rate of 12.5% and 2% respectively, being an inter-state sale. Further, Dealer “B” will not get any credit of this Excise Duty and CST. Dealer “B” in turn sells it to Dealer “C” in Gurgaon and charges VAT on such sale. Dealer “C” sells it to Dealer “D” in Delhi and collects CST, and finally Dealer “D” sells these goods to the end consumer in Delhi, collecting VAT.

Pic credit: cleartax.in

From this diagram the difference between previous tax system and GST tax system is clearly understood.

Benefits of GST

For industry/businesses

1. Easy compliance - Transperency in taxation system and online availability of taxpayer services and will help in easy compliance of this system .
2. Uniformity in tax rates and structure -This will ensure that tax rates are consistent across the country. This will increse ease of doing business and remove hidden taxes.
3. Removal of cascading effect is another major factor associated with this system-A product on which excise duty is paid can also be liable for VAT. Suppose a product A is manufactured in a factory. As soon as it releases from factory, excise duty has to be paid to central government. When that product A is sold in same state then VAT has to be paid to state government. Also no credit on excise duty paid can be taken against output VAT. This is termed as cascading effect since double tax is levied on same product. 
4. Possible reduction in cost of utilities -Due to reduced cost of logistics and distribution prices may come down for some goods.

For government

1. Simple and easy to administer tax system as compared to previous system. 
2. Better control on leakages of tax money.
3. Higher revenue efficiency -This system will decrese the cost of collection of revenues and hence incres the efficiency of revenue collection

For consumer

1. Single and transparent taxation system
2. No hidden taxes

Now negatives of the GST system are

1. GST is being referred as a single taxation system but in reality it is a dual tax in which state and centre both collects separate tax on a single transaction of sale and service.
2. GST taxation system limits the power of state government in terms of revenue collection. It is estimated that due to implementation of GST system a large revenue will be transferred to centre instead of states. This can further create disharmony in federal system of India.
3. There is a lot of confusion about new tax system, even after so many days of GST implementation. Some business owner are also opposing it for it may result in extra burden on their pockets.