Different from Value-Added Tax (VAT) that is only imposed on intrastate sale of goods, Goods and Services Tax (GST) is a broad-based consumption tax levied on the import of goods, as well as nearly all supplies of goods and services. GST exemptions also apply to a provision of most financial services, supply or digital payment tokens, sale and lease of residential properties, also importation and local supply of investment precious metals. 

GST boosts state economy, creating more employment 

As per April 1, 2017, India has implemented GST in its financial practice which has improved and boosts businesses by the multiplicity of taxes and their cascading impact. Dr S P Sharma, a chief economist in India, reported that Goods and Services Tax will enhance production possibility frontiers, creating millions of employment opportunities for the young population and pushing India’s growth trajectory by two percentage points. The simplification of taxation and increased growth trajectory would also attract more and more FDIs and increase further the employment opportunities in the economy. 

Dr Sharma’s statement is proven by the economic growth and employment growth in India between the year 2017 – 2018 after Goods and Services Tax implementation. India Economic Survey revealed that the introduction of Goods and Services Tax, digitisation or payments and social security schemes have led to the creation of more formal jobs, with an increment from 17.3 percent in 2011 -12 to 19.2 percent in 2017-28. The actual numbers of workers in the organised sector increased to about 9.05 crore workers in 2017-18. 

Furthermore, the implementation of GST removes barriers between states. GST creates a common base and common rates across goods and services and reduces transaction costs. A more comprehensive and wider coverage subsuming several Central and State taxes in GST will be beneficial for businesses, especially those in manufacturing. There might also be a reduction of transaction costs of manufacturers which would reflect in a reduction of prices of goods. This eventually leads to more competitive and increased competitiveness not only in the domestic market but also in the international market. 

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In bullet points, here are some benefits of GST for businesses and individuals: 

• Business-registered GST is often a signal to a customer that your business is an established business and has a certain size. 
• GST is a fairer tax system as it taxes self-employed and wage earners only when they spend their money. 
• GST taxes apply only on consumption. Savings and investment are not taxed. This will encourage people to save and invest in productive activities. 
• Cost of doing business is reduced, contributing to lower prices. Businesses do not suffer a tax cost due to the multi-stage credit mechanism since the real taxpayers are the end-user. 

Meanwhile, for the government, GST is beneficial in the following aspects:  

• Generating a stable and predictable tax income in both a good and weak economic environment. 
• Creating an efficient tax due to the comparatively lower cost of administration and collection. 
• Allowing the government to lower corporate and personal income taxes, which in turn encourages more foreign direct investment, leading to overall economic growth and more employment.

Drawbacks of GST

Albeit GST brings valuable benefits to government, businesses, and individuals, there are a few significant drawbacks. Based on Satish AR at Intuit Quickbooks review, here are the drawbacks: 

• There might be an administrative burden that comes with discharging the duties and responsibilities of GST registration. 
• Businesses should truly study the intricacies of GST or pay an accountant to undertake this work which in some cases can be a reasonably high cost. 
• GST increases businesses’ selling price by a certain percent, depending on each country that implements GST. This, however, might burden lower-income groups, especially during high inflation of price increment.

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