The Goods and Services Tax or GST is a tax levied on the supply of goods and services in India. It replaced the excise duty, sales tax, and octroi which had been imposed in India by the Government at various times during history. However, a discussion about the GST advantages and disadvantages is a must-read for all citizens and business owners. In this article, we’ll talk about some of the main disadvantages of GST that you should be aware of.
Compliance Burden
The biggest challenge for businesses is to comply with the new GST regime. Businesses must register for GST, keep records of all transactions over Rs 1 lakh, and file returns every quarter. The government has introduced a number of measures to make compliance easier for businesses. However, the process involves quite a bit of paperwork, which may not be feasible for smaller enterprises. For example, small businesses need to maintain separate books for each location where they do business, but there is no way they can file a single return covering all locations and jurisdictions where they operate. In addition, many small businesses are not able to afford professional help in filing their GST returns or maintaining records of their transactions.
Increased Costs
The increased cost of doing business is another disadvantage of GST that will affect small-scale enterprises (SSEs). The tax reform removes most exemptions from taxes such as input tax credits (ITC), excise duty and customs duty on goods imported into India from outside India. This means SSEs will have to pay taxes at every step in the supply chain from raw material suppliers to distributors and retailers. This would lead to higher prices for products sold by SSEs as well as increased expenses.
IT Software Expenditure
The biggest disadvantage of GST is the expenditure incurred on IT software and hardware. As per the government estimates, it will cost an additional Rs. 2 lakh crore to implement GST in India. The government will bear this huge cost in terms of increased budget and tax collection. The software expenditure alone may exceed Rs. 1 lakh crore annually, which means that there won’t be any profit left for companies after paying this amount to their vendors and employees.
Burden on SMEs
SMEs are generally characterized as small and medium enterprises (SMEs). But the big difference between SMEs and large companies is that the former pay tax at lower rates than the latter. For example, the rate at which a company pays tax is calculated on the basis of the profits it makes and not on its total turnover.
As such, with an effective tax rate of 33%, SMEs are burdened by a high tax burden compared to larger companies. This can be seen as unfair as smaller companies cannot compete with larger firms in terms of cost efficiency or size. The burden on SMEs may also be one of the causes of the negative impact of gst on gdp.
