The latest news that has taken the country by storm, GST (Goods and Services Tax) is certainly a relief for the taxpayers, as they are now expected to pay a single combined tax instead of the superfluity of taxes like Central Excise, State Value-Added Tax (VAT), Service Tax, Octroi and many other subsidiary taxes. The GST bill is believed to fuel the economic integration of the Indian economy. Amalgamation and modernization of the process of indirect taxation will now be made easier and more efficient.
Considering this tax will be levied on production, sales, and consumption of goods apart from services at the Central government and State government levels, it is rest assured that the difference between Goods and Services will be reduced progressively, ensuring tax compliances become easier. It, also, is interesting to know that we are taking another step towards progress with GST as most of the developed countries use this form of taxation, not only for ease and convenience but also to avoid double taxation.
GST will be allocated on transaction value that includes packing cost, contract, and all other expenses incurred for sales. While all other States are in support of the bill, the Tamil Nadu government feels that this bill may take away the independence of the State government.
Let us take a look at some of the major impacts of GST on startups in India –
1. Immunity for new businesses: At present, businesses with gross revenue of more than INR 5 lakhs must get VAT registrations and pay VAT. However, GST will up this limit to R 10 lakhs and above. Here, industries with a turnover between INR 10 lakhs and 50 lakhs will be taxed at lower rates. This will certainly reduce tax burdens on newly established businesses. Also, GST will bring about an ease in launching new businesses. For example, new businesses require a VAT registration from sales tax department, apart from undergoing numerous procedures and fee payments in each state. Here, GST comes in as a welcome change, bringing about uniformity in the process. GST will enable centralized registration, thereby encouraging business startups and expansions.
– Relief for sales and service sectors: One of the most complex businesses – restaurants, which are both into sales and services, fall under two taxations, i.e. food and service. This witnesses them calculating both VAT and service tax separately, making the entire calculation process extremely complex. GST comes as a relief to this sector wherein the taxation will not differentiate between sales and services, ensuring tax calculations are done on the total amount.
– Decrease in cost – logistics & transportation: GST will ensure that the interstate movement becomes cheaper and is less time consuming, by eliminating small border taxes and resolving check post issues. This will inevitably reduce the many costs connected with upholding high stocks, as there will be a smooth movement of goods.
– Simpler revenue system: At this time, startups spend a lot of time, energy and hard work in managing countless taxes at countless points. Understanding and then following limitless rules and regulations at different States makes the whole process of setting up a new business a very complex affair. GST not only simplifies the process by assimilating all the taxes to be levied but also makes the entire process of tax paying a whole lot simpler.
While many believe that the implementation of GST may lead to losing the fiscal self-sufficiency of the States, causing permanent revenue loss, the government has proposed to pay reimbursements to the States for the losses endured by them for a conversion period.
All in all, GST will be a blessing for business startups and various other sectors. It is expected to be huge savings for logistics, manufacturing and retail companies. However, certain other sectors dealing with luxury products like cars, tobacco products etc. will face higher tax rates between 27% – 40%.