The biggest indirect tax reform since 1947, GST bill is expected to bring about an economic integration of the Indian economy. GST will help consolidate and streamline the process of indirect taxation and make it easier and more effective. The tax payers will pay one consolidated tax instead of the plethora of taxes including State Value-Added Tax (VAT), Central Excise, Service Tax, Entry Tax or Octroi and a few other indirect taxes.
Why are startups and SMEs so excited about GST?
GST is deemed to benefit all businesses in India, but small businesses can rejoice for the following reasons:
1. Ease of starting business: Any new business needs to have a VAT registration from sales tax department. A business operating in many States has to face a lot of issues regarding the different procedures and fees in each state. GST will bring about a uniformity in process and centralised registration that will make starting business and expanding in different States much simpler.
2. Higher exemptions to new businesses: As per the current structure, any business with a turnover of more than Rs five lakh has to get VAT registration and pay VAT. GST will make this limit higher, to upto Rs 10 lakh and, further to it, businesses with turnover between Rs 10 and 50 lakh will be taxed at a lower rates. This will bring respite from tax burdens to newly established businesses.
3. Simple taxation: Currently, a startup spends a lot of time and energy to manage the various taxes at various points. Adhering to different regulations at different States make the process very complex. GST will simplify the process by integrating all taxes, making the process of paying tax simpler.
4. Respite for businesses in both sales and services: Businesses like restaurants, which fall under both sales and service taxation, have to calculate the VAT and service tax on both items separately. This makes the calculations process very complex. GST will not distinguish between sales and services, and thus the tax calculation will be done on total.
5. Reduction in logistics cost and time across States: Many transport vehicles get delayed during movement across States due to small border tax and checkpost issues. Interstate movement will become cheaper and less time consuming, as these taxes will be eliminated. “The whole Indian market opens up for manufacturers as interstate supply becomes tax-neutral,” explained Narayan. This will also bring down costs associated with maintaining high stocks, as there will be undisrupted movement of goods. As per a CRISIL analysis, GST can reduce logistics costs of companies producing non-bulk goods (comprising all goods besides the primary bulk commodities transported by railways – coal, iron ore, cement, steel, food grains, fertilisers) by as much as 20 percent