The Indian taxation system witnessed a revolution when the novel Goods and Services Tax regime was rolled out in 2017. While many welcomed the advanced system of taxation with open arms, many others repelled it with criticism over its confusing variables.
While traders and business owners openly flouted the new tax system citing the disadvantages of gst, it emerged with a summation of three individual taxes, to be levied upon different goods and services.
What Are The Different Types Of GST?
Goods and services tax (GST) has been unveiled by the government in a bid to replace the multiplicity of taxes which existed at different tiers of the state and centre such as Value added tax, service tax, entertainment tax, excise duty and more.
As per the system of GST, there are three types of taxes applicable under the new system, as discussed below.
Integrated Goods and Services Tax (IGST)
IGST is implemented by the central government on the exchange of goods and services between two states, along with imports and exports of goods. The tax regime is governed by a separate IGST act, based on which the centre divides the collection of tax among the concerned states.
IGST replaces the erstwhile Central Sales tax which was applicable on similar transactions. The centre also reserves a particular share of the collection from such tax. IGST is the sum of the remaining two types of GST, which does not add any extra burden of taxes on the consumer.
State Goods and Services Tax (SGST)
SGST is applicable on intrastate transactions wherein, tax is collected on the exchange of goods and services within the same state. Unless a transaction is exempted from taxes under the GST tax regime, SGST shall be charged by the state government on all sales and purchases affected in their state.
The SGST Act governs the applicability of the tax on all intrastate transactions. All proceeds from the tax collection belong solely to the state government. This tax repeals the erstwhile service tax, excise duty, special additional duty and levy of other indirect taxes.
Central Goods and Services Tax (CGST)
The CGST is collected on intrastate transactions between sellers and consumers of the same state. Proceeds from the levy of the tax are retained by the central government.
CGST and SGST are collected together, wherein, a part of the tax is retained by the state and the remaining, by the centre. The tax repeals the erstwhile sales tax, VAT, entry tax, entertainment tax, octroi and other similar taxes.
Impact of GST on Small Businesses in India
Comprehensively popular behind the ‘one nation, one tax’ theology, GST is an integrated taxation system, which has been widely publicised as a revolution in the domain of taxation. GST achieves the elimination of double taxation and reduction of the overall cost of the goods.
In India, there are overall fifty million small and medium scale business establishments. These include several industries which have been impacted by the implementation of GST. It might be harsh to say GST has brought only drawbacks for the traders of such small businesses.
Discussed below are the pros and cons of the introduction of GST in India.
Pros
With the implementation of GST, a uniform set of rules apply across every state, which reduces redundancy of applicable regulations and cost of establishing a new business.
As GST replaces several indirect taxes on goods and services, it promotes a transparent system of taxation with the elimination of double taxation and overlapping of taxes.
To ease the pain points for small scale traders, interaction with concerned authorities is reduced. The system of invoicing has been simplified with the provision of several incentives for the businesses. With a reduction in the collection of taxes at several stages, the overall costs of products and services have come down, increasing their consumption in the market.
For registration, payment of taxes and filing of tax returns, traders can access an online portal which has nearly eliminated various compliance costs that were earlier related to offline systems.
Cons
Shifting of the complete interface for availing various services has rendered many traders to face the dark as they face the challenge of operating an electronic medium. Access to online resources is a bottleneck to complete overhaul of the indirect tax regime.
Moreover, businesses are required to file various returns and documents monthly, which has added the additional burden of paying the fee for the service each time. Moreover, failure to meet this requirement has implicated the compliance status of the business, which implicates it negatively.
Facing the burden of the regulatory requirements, traders feel compelled to avail the assistance of accountants or experts, which is an added expense for them. Bookkeeping requirements have also increased, which have distracted the business owner’s mind from their pivotal goals.
For every state that a business wishes to operate in, or transact with, registration of GST in that state in mandatory. This has further added a compliance requirement for businesses, which has proved to be cumbersome and restrictive.
In Conclusion
When it comes to small businesses, they are usually the more honest segment of business owners. Many have viewed GST as a counterproductive move, which may eventually lead to the closure of most small scale businesses. While it may not be an apparent intent of the government, it is most likely to occur as a ‘side effect’ of the policy decision.
The policy of compliance rating comes as a significant blow to businesses, who will be assessed by their customers based on their rating, before dealing with them. This rating can fall not merely because of a delay in filing returns but also because of delay in payments.
Small businesses tend to face more problems with the operational cycle. Only now, these problems might gain momentum with a snowball impact that might tip the balance of the business off the scales.
However, the amendment in gst has been implemented with a vision for development, and in the long run, after all its technicalities are addressed, it might even prove to be beneficial for small businesses.
