The tax system in India is very rigid and complex and it’s very difficult for new start-ups to navigate with several types of direct and indirect taxes. However, with the implementation of GST things will change completely.
GST will subsume most of the indirect taxes like service tax, excise duty. VAT, entry tax, entertainment tax etc and will bring them under a single umbrella. GST will remain uniform countrywide and will make the country a common marketplace. In the current scenario, indirect taxes are levied separately on goods by each state, but with the roll-out of GST, there will be a single tax on the sale, manufacture, and rendering of services throughout the country. Startups in India have welcomed the new GST law. Now the question arises, “How GST will affect the Startups?” So let’s see
The Impact of GST on Indian Startups
- Lower Tax Burden
As per the existing tax regime business exceeding turnover more than rupees 5 lakh has to apply for VAT registration and required to pay VAT. But under GST the limit has been increased to rupees 20 lakh. This will lower burden of tax on the startups.
- Simple Taxation Process
The Tax process under GST will be simple and easy, and startups have to pay only a single tax. With the implementation of GST, there will be no requirement to get registered under various taxes as mentioned above GST will subsume all taxes such as VAT, Entry Tax, Entertainment Tax, Excise Duty, Service Tax etc.. GST is completely online; starting from the registration to the payment and filing the returns. Just a click and you are done with your GST registration and payment. GST will save a lot of time, energy and another allied cost for the new start-ups.
- Reduced Startups logistic cost and time
Presently, the logistics industries in the country are required to maintain several warehouses across in different states for avoiding the incidence of the prevailing CST and entry taxes on inter-state movement of goods. There are cases where the warehouses were being operated below their optimum capacity thus increasing the overall operating costs.
GST would unite India eliminating the restrictions on the inter-state movement of goods. It would bring warehouse consolidation throughout the country. As a result of GST, e-commerce players and warehouse operators have shown interest in establishing their warehouses at strategic sites such as Nagpur, the zero mile city of India.
Decrease in avoidable logistics costs would increase the profits for start-ups which are involved in logistics and supply of goods.
- Benefit for Manufacturing Startups
GST will be very helpful in annulling cascading effect and will reduce the cost of production/manufacturing which will make the goods more competitive. GST will minimize the time and the interstate transportation cost, hence, making the supply chain more effective and gaining major advantage for the manufacturing startups.
- Online Startups will become simpler
Online startups have presence all across the country. Most of the startups offer goods and services via internet. In the existing system, states have different Value Added Tax (VAT) laws. For instance, online websites such as Amazon, Flipkart, etc. delivering goods to the state of Uttar Pradesh, are required to file a VAT declaration together with the registration number of delivery trucks. The tax authorities at times seize the goods on failure of producing documents. Again, they are considered as mediators or facilitators by states like Rajasthan, Kerala and West Bengal where they are not required to register for VAT.
But with the GST roll out from 1st of July, 2017 all these confusing compliances and differential treatments would be removed. Consecutively, GST will lead to more efficiency and transparency in the whole process.
- Single Tax on Products and Services (Good for New startups in Restaurant business)
Restaurants, however, would gain from GST roll out because in the existing system every food and beverages bill, which a diner pays, included additional VAT together with service tax and service charge. The VAT rate ranges between 12.5%-14.5% as per the State. Hence, the effective rate of tax comes to around 18.5%-20.5%.
Under the new GST regime, the restaurants are divided into two categories: AC and non-AC restaurants. Dining in an air conditioned restaurant would attract tax of 18%. For low-cost and non-AC restaurants the tax rate will charge 12%. Restaurants with a turnover of Rs 50 lakh or less would come under 5% composition.
Not only the Government but the startups (new and existing) and consumers, all will be benefited by the roll-out of GST. We hope for a better future with the GST reforms.