India’s tax regime is something that comes with amendments and new updates from time to time. So much so, that at times, it is difficult for new businesses to comply. GST is a trending topic which has been going around for a couple of months now. It is even considered as a radical shift in the history of indirect taxation. For a long time now, service tax played a major role in the accounts statement of entities. The government rolled out GST with effect from July 1, 2017. GST is not a something new anymore. Practices to implement GST were in full action for the last couple of months. No one wanted to lag behind in GST compliance.
But what is GST?
It is solely based on the principle of “One nation, one tax, one market” and is a Multi-Stage Tax. Multi-stage tax can be understood better with an example.
If you own a shirt manufacturing company, your first stage would begin with buying raw materials like cotton, yarn. There is a value addition once the shirt is made. It is then passed onto the packaging process for labeling and tags, hence adding further value. From thereon, it is passed on to a retailer who finally invests in marketing and promoting the product adding to the value and finally selling it to the end consumer. In the process above, every stage added value to the product. There comes GST. GST is levied in all the value additions.
Destination based is another term which you need to be aware of- Unlike earlier tax format; GST will be levied on every point of sale. However, it is not all merry for small and medium sized entities. As mentioned earlier, tax reforms and their compliance is a little hassled for small and medium sized entities.
Let’s take a look on the various insinuations of GST with respect to medium and small sized enterprises
• EASE OF DOING BUSINESS – India’s ranking is 130 in Ease of doing business and seeks to jump 40 places ahead this year. Well, here is a good news, with the implementation of GST, starting a new business will become easier since GST would ensure uniform tax procedures, uniform fee structure in all states
• EASE OF TAXATION – GST promotes same tax structure across all states hence eliminating the cascading effect of multiple state and central taxes.
• GOODS OR SERVICE: CONFUSED? – Earlier taxation structure was such that good and services and a different set of taxation rules applying to them.VAT applied to Goods and Service tax applied to Services. Now, there is no such differentiation. This will help reduce tax evasion
• SINGLE TAXATION – GST will help reduce cost owing to multiple taxations caused by state and central taxation policies.
• GO ONLINE – Small and medium-sized entities don’t have to chase departments anymore for compliance issue. They can access everything online.
• BENEFICIAL FOR NEW BUSINESSES – A business is liable to pay GST only if the business is amassing turnover of 20lakhs and above.
In spite of the major points stated above which is pro medium and small sized enterprises, there are few worrisome areas as well.
The prevailing sentiment towards GST is that it might not turn out to be as beneficial as it claims to be for medium and small-sized entities.
Under the previous excise tax regime, a manufacturer with amassing turnover less than 1.50 crores was not liable for duty. Post GST implementation, this limit will be lowered. As per a statement released by The Finance Minister Arun Jaitley, this limit can be as low as 10 lakhs. This implies that several SMEs were escaping tax earlier owing to the higher exemption limit but now since it will be lowered, several SMEs will bear tax liability and will end up paying the hefty amount of their profit towards tax. Moreover, adding more to the agony, GST does not have any differentiation with regards to luxury goods or essential goods thus making SMEs exposed to the fierce competition in the market against giant companies.
GST will undoubtedly be beneficial for the country in long run however, it undoubtedly, will open a can of worms and the effect on different sectors will vary. It is difficult to state now if since it’s only been a week post implementation. GST impact on the economy should be reviewed from all aspects to reach a conclusion.