The biggest tax reform in independent India is on way to implementation with a four-slab structure proposed by the government. The Goods and Services Tax or GST is essentially a single tax on the supply of goods and services, all the way from manufacturers to consumers. The final consumer will be charged GST by the last dealer in the supply chain. GST is a consumption tax, and will be applicable at the stage where a product is consumed rather than at various stages of production.
How will GST impact startups?
- Ease of doing business:
VAT registration from the sales tax department is mandatory to start a new business. Any business that operates in multiple states needs to comply with different procedures and fees structures. With GST being implemented, startups will need a single license. A centralised registration will also make the expansion process simpler.
GST will be a game-changer for startups. Entrepreneurs will need to get just one license before starting operations.
- Higher exemptions to new businesses:
"Big startups will not benefit from this exemption directly. â€¦But smaller startups will definitely gain from GST. The bigger companies can in turn work with the smaller companies to benefit indirectly," says Harish H V, Partner at Grant Thornton, a US-based accounting network.
- Taxation made simpler:
"Once GST is in place, the economy will grow, which means more capital and more growth. Startups will need to operate efficiently to benefit from GST. Of course a simpler taxation system helps them grow better," said Harish.
- Reduction in logistics cost:
"Companies such as Flipkart, Amazon all are big on logistics. They will benefit a great deal. Cab aggregators like Ola and Uber will also leverage from GST," said Harish.
But all good things come to an end. With startups benefitting from GST, there are also downsides of the tax regime.
Startups in the manufacturing sector will bear the brunt. Going by the existing laws, a manufacturing business that has a turnover less than Rs 1.50 crore is exempted from paying duty. However, with the implementation of GST, the turnover limit will be pulled down to Rs 25 lakh and making it tough for many startups.
E-commerce companies will have to file quarterly and monthly returns and pay tax on sales on their portals once GST comes into force.
Despite the few drawbacks, GST remains to be the friendliest tax reform in India. With GST, will come transparency, efficiency and more growth.