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What are the disadvantages of GST, and how to work around them?

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Created on
April 28, 2023


What’s Inside

GST was a revolutionary step by the government to simplify taxes and help all businesses. The advantages of GST are many, and you can check them out here. While multiple indirect taxes are gone, the new system has some disadvantages.

The Cons of GST included increased compliance costs, operational expenses and IT infrastructural challenges. Let’s explore the top 10 disadvantages of GST here.

1. Compliance Problems

As GST registration is now mandatory for all businesses, the official processes have increased. Every business owner has to file GST returns timely, which has amplified the compliance burden on government officials.

Not every owner understands these compliance matters, adding to the problems.

2. Added IT Costs

Another one of the disadvantages of GST is the IT infrastructural requirements. Every state is not equipped with the appropriate IT systems for GST operations. So, it can slow the GST filing and registration process and hamper businesses.

Also, the state governments must allocate additional IT facilities and infrastructure costs.

3. Increased Operational Expenses

Companies have been forced to change their traditional accounting systems to GST-compliant ones. This has increased expenses for software installation, employee training and hiring staff with a technical background.

So, many companies struggle to handle these operational costs and other business expenses.

4. Complicated Tax System

With different tax slabs, exemptions and new rules, the GST structure might be difficult for small business owners and startups. The frequent modifications in the tax rates, regulations and GST procedures make the system even more complicated.

These companies might need external assistance to solve their GST issues, making the process troublesome.

5. Inflationary Effects on Businesses

When complaints, expenses and tax rates increase, it directly affects customers and businesses. It can result in increased commodity prices and services, making daily life difficult for many consumers.

Therefore, inflation significantly impacts the country's economy and GST rates.

6. Problems for the Unorganised Sector

The increased expenses for compliance, IT infrastructure and business operations don't work well for the organised sector. Most of these business owners lack the technical knowledge, infrastructure or understanding to handle GST.

So, they either fail to pay taxes on time or shut their businesses down.

7. High Tax Liability

Earlier, businesses having an annual turnover of 1.5 crores had to pay excise duties. Due to the introduction of GST, the scenario has changed. Now, it is mandatory for all businesses with an annual turnover of over 40 lacks to file code GST returns.

This is immensely increased the tax burden for many medium and large-scale businesses. It's a big problem for companies that may have started to generate decent profits.

8. Lack of Clarity on Taxes

After GST was introduced, the entire process of filing taxes changed. Many companies and business owners did not properly understand the reformed systems. Still, there is a lack of clarity about GST processes, leading to litigations and disputes.

9. Penalties for Non-Compliance

MSMEs might have problems completing the GST registration process and filing taxes on the specified dates. Due to a lack of experience in these processes, small business owners might fail during the GST filing. It leads to non-compliance and penalties.

10. Issues with Multiple Registrations

Companies with branches across different states must complete GST registration separately for each state. This increases operational expenses and takes more time, making it extremely tedious.

The Bottom Line

The inflationary effects and technological burdens are some concerning cons of GST that can affect all business types. The government is responsible for addressing these problems and simplifying the GST regulations for everyone.

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Frequently Asked Questions

Q) What Are The Demerits Of GST?

The cons of GST include complicated rules, increased IT dependence and added tax burdens.

Q) What Are The Merits Of GST?

The merits of GST include fewer tax payments, reduced corruption and better exports.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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