July 1, 2017 will be regarded as the ‘Red Letter Day’ in the history of India for the much awaited legislative reform, Goods and Services Tax (GST) will come into effect. Touted as the biggest legislative reform since Independence, the legislation has initially created apprehension in the minds of taxpayers and entrepreneurs alike. Few realize that the reform will be a game-changer for the economy. Let us first try to understand what legislation entails. Broadly speaking, GST will subsume the whole gamut of indirect taxes such as VAT, Service Tax, central excise tax, octroi into one unified tax. This has multiple ramifications not only for the burgeoning Indian startup industry but for the economy as a whole.
Till now, an entrepreneur was required to knock at several doors of Sales Department for their VAT registration. They had to make way through a maze of complicated procedures, uneven fee structures and multiple guidelines. GST will bring uniformity in the entire process with centralized registration. This will provide a fillip to business and provide it incentive to expand to multiple states.
Currently, startups have to devote a lot of time and resources paying various taxes at multiple points and adhering to various regulations in different states. GST will simplify the entire process by integrating all taxes, thus also make tax compliance cheaper. In short-term, it might increase compliance as sellers need to file a return thrice in a month, contrasted with once in six months, at present. This may increase compliance in the short term as software to automate all processes is as yet being built. Startups which give services will likewise profit as the service tax exemption limit has been raised to Rs 20 lakhs from Rs 10 lakhs prior. GST will boost the growth in GDP and drive the tax revenue of the government higher to work in a dual way to cut down the fiscal deficit.
Expulsion of a considerable measure of taxation bottlenecks at state borders through one tax will make India as one market. It will likewise diminish inconsistencies of the price contrast of goods between states. Taxation software startups will likewise get a fillip. Numerous startups are into e-commerce and their logistic expenses run up with 11 categories of taxes imposed out and about the road transport sector. GST can diminish logistic costs of organizations producing non-bulk goods (comprising all goods other than the essential bulk commodities transported by railways – cement, steel, coal, iron ore, food grains and fertilizers) by as much as 20 percent.
Businesses like restaurants, which fall under both sales and service taxation, need to calculate the VAT and service tax on both items independently. This makes the computations procedure exceptionally complex. GST will not distinguish between sales & services, and accordingly the tax calculation will be done on total.
The GST is a standout amongst the wide-sweeping reforms launched by the Indian government in the current circumstances, and will profoundly influence how business is conducted in our nation. India has always fared badly on simplicity of doing business. GST will enormously work towards that direction.
However, significant advantages are expected in the movement of e-commerce goods between states. Delivery is probably going to be less time consuming and less expensive. GST is applicable all over India so there is no complication for inter-state movement of goods.
As of now, startups in the manufacturing sector need to hold fast to a considerable measure of state regulations other than paying state taxes. Businesses with a turnover of less than Rs.10 lakhs per annum would neither have to register for GST, nor collect GST. Furthermore, businesses with an annual sales turnover of Rs.10 lakhs to Rs.50 lakhs may have to pay GST only at a lower rate.
Startups cherish DIY, regardless of whether it is writing code or filing tax. GST intends to make taxation process transparent and with all processes becoming computerized, startups that lack resources to hire tax specialists or a dedicated team for dealing with compliance can relax. Startups can file details online, starting from from taxpayer registration, return submission, to tax payments and refund claims.
Seen as one of the greatest tax reforms post independence in 1947, the GST is set to deliver phenomenal change of the Indian economy. GST will prove to be a solid empowering influence for the startup ecosystem by giving a streamlined tax collection process and expel the biggest distress of the manufacturing industry. Due to GST, urban areas will see an upsurge in the manufacturing startups.
India will become one seamless consolidated market with the streamlining of tax system. Despite speculations and the initial teething problems, GST seems like a win-win situation promising process-level efficiencies, GDP growth, reductions in costs and increased growth prospects both for the government and the tax payers.
Read More: BW Disrupt