India’s biggest tax reform known as The Goods and Services Tax(GST bill) has been making headlines since the day it was first introduced. It is touted to be the biggest revolution in the history of the Indian Tax System since Independence.
On April 13th, 2017 the President of India, Shri Pranab Mukherjee signed four enabling bills related to the GST. Thus making it into law and bringing the country a few steps closer to its dream of ‘One nation, one tax’ reform.
The four legislative bills passed were the Central GST Act, 2017, the Union Territory GST Act, 2017, the Integrated GST Act, 2017 and the GST (Compensation to States) Act, 2017. Everyone is now looking forward towards the State governments to pass the State GST bill at their respective assemblies.
The GST bill is desired to be implemented by the Centre across the entire country by the 1st of July, 2017.
What is GST?
The Goods and Services Tax is known as a general indirect tax levied on the manufacture, sales, and consumption of goods and services availed in the country. It is governed and administered by the GST council under the chairmanship of the Union Finance Minister of India, Shri Arun Jaitley.
The implementation of this act would lead to an ambitious leap in the indirect tax reform within the country. Indirect taxes such as services tax, excise duty, value added tax, entertainment tax, luxury tax, octroi will become one tax – all under the GST.
While GST is expected to uniform the ease of doing business across the country for all kinds of economic sectors, the startup ecosystem is all the more proactive and thrilled to benefit from its effect.
Here are 6 Things About the GST Bill and How It Affects Your Startup
1) One for all and all for one –
GST bill would enable the integration of all taxes into one and under a universal decision maker, i.e., the Union to enact law changes related to it. This will simplify the tax compliance processes between different states of the country.
2) Ease and uniformity of starting a new business –
To start a new business in India, it is mandatory to get VAT registration from the sales tax department. For a company having its operations in various states of the country, it becomes a tedious and an expensive affair to adhere towards all the different VAT regulations between the individual states. This process will be uniform by the passing of the GST bill.
3) Low tax rates for newly established businesses –
Any company with a turnover of more than Rs 5 lakhs annually has to register and pay for VAT as per the present mandate. After GST comes into effect, the proposed limit would be increased to Rs 20 lakhs. Thus providing relief for newly established businesses as they can save money and invest it towards a better purpose.
4) Increased efficiency for logistics –
The inter-state trade often takes a hit due to several taxes and checks at state borders. This affects the logistic movements of goods leading to delay in deliveries and increased product cost. GST aims at terminating these inefficiencies by reducing the time taken for compliance and making the entire process to be tax neutral.
5) Sales and services are the same –
Startups in the sales and services model of business can have a huge sigh of relief as the GST law does not differentiate between sales and services. This means no more tax calculations by VAT and service charges on the items separately. Under GST, the tax will be calculated by the total.
6) Special implication for e-commerce players
The GST bill introducing a concept of Tax Collection at Source (TCS) by which all e-commerce players are supposed to deduct 1% of the total net value of taxable supplies which has to be deposited with the government. So, while the GST implementation will get rid of numerous issues like interstate taxes, entry tax, VAT, etc., it also introduces this issue of TCS.
With Cash on Delivery still being a top payment option and with increased returns, the problem with TCS is that it will lock up some capital for e-commerce operators and it might be a challenge to collect the refund for taxes already paid for goods that have been returned.
Every major advancement in reforms comes with its own set of difficulties. Even though the GST bill is being called a ‘game changer’ there are some who argue that the rush in the rollout of GST would lead to a technological nightmare for businesses.
As the new GST program is getting ready to be rolled out, make sure you speak to a special accountant for startups, who can understand your needs and propose the best implementation.