As said by top analysts and economists, GST (Goods and Service Tax) will be the biggest tax reform in the country since independence. It is expected to bring about a massive economic change, affecting every taxpayer, especially start-ups and small businesses. It is an economic reform that will streamline the indirect tax process in the country. It is expected to affect the prices of goods and services both in a positive as well as a negative way. Instead of a plethora of taxes, taxpayers will pay a single unified indirect tax called Goods and Service Tax (GST). Tax compliance will become easier and the cascading effect of taxes will be minimized.
Although GST will touch all sectors of the economy, its advantages for start-ups and small businesses are manifold. These are as follows:
1. GST will improve the ease of starting business:
If a person is seeking to open a new business, he/she must be registered with a VAT from the sales tax department. Also, a business expanding in different states have to face hurdles regarding procedures and fees structure in each state. Since GST, that is expected to roll out in July, will unify all processes and indirect taxes, centralizing registration, starting and expanding business in different states will make it simpler.
2. GST will improve the ease of doing business:
GST is levied at point of every sale and not on point of purchase. It is very much unlike VAT and service tax. The States and the Centre has their list of taxes that are applicable on goods and services making them expensive for the end consumer. These taxes are also levied on production, manufacturing, and distribution of goods and services. Taxes levied by the State include VAT, central sales tax, octroi and entry tax, purchase tax, luxury tax, taxes on lottery, betting, gambling, state cess and charges, entertainment taxes. Therefore, tax charged by the last dealer will be applicable on the consumer and not the entire plethora of taxes. This will be cheaper for the consumer as well as the businessman, increasing profit for his business. GST will subsume all the taxes into one and will be good for small business and start ups.
3. Higher exemptions to new business:
Earlier, a business with a turnover of or more than Rs. 5 lakh had to get VAT registration and pay VAT. With GST, this limit will be raised, with mandatory VAT registration and its payment for businesses with a turnover of or over 10 lakh rupees. Also, there will be lower tax rates for businesses with a turnover between Rs. 10 lakh and Rs. 50 lakh. This will lower tax burden of newly established businesses. Currently, business with a turnover of more than 5 lakh have to necessarily pay VAT and it differs in different States. This will change with the implementation of GST. In GST, businesses with a supply of less than 20 lakh would not be compiled to pay or register for GST. Businesses with a turnover of 20-50 lakh will have to pay GST at a lower rate. This comes as a relief to small businesses and startups who would not be complied to pay high taxes.
4. Simple taxation process:
As of now, different businesses have to deal with and pay taxes at various points. Payment of taxes and different rules and regulations in each state regarding taxes make the process complex. GST will integrate all the taxes and make it easier to pay taxes by small business and start ups.
5. Boost GDP:
GST will simplify multiple layers of taxes in India. It will eliminate cascading effect of multiple taxes, improve the ease of doing business thereby increasing profitability and attracting investments and help GDP grow.
6. Bring down logistics and sales cost across states:
Border taxes and checkpoint issues result in delayed goods due to strangled transport vehicles. Since taxes will be eliminated, interstate movement will become hassle free and quick. A tax neutral interstate supply will open up a whole new market for manufacturers and small businesses. Further, this will eliminate logistics cost by 20%. It will also make transportation of goods easier.
7. No distinction between sales and service tax:
For every business that falls into the category of both sales and service tax, such as restaurants, they have to calculate both VAT and service tax on both items separately. Thus, the tax process is complicated and with the onset of GST, tax calculation will become easier.