- Goods and service tax or GST is one tax to subsume all taxes. Yet another agenda that has been inflicted upon us Indians to go figure if this will prove to be a benefit or an affliction. We have been trying to understand GST on the basis of the changed taxation laws as compared to the previous VAT reforms but it is still is mystery to many. As per startups are concerned, the impact on individual sectors might make it easy to classify.
Service sector-A lot of startups are into service industry hence they had to pay service tax under the VAT regime. Under the GST regime, they can set off the VAT paid on the purchases i.e. the supply purchases or they will have to pay less as compared to the former tax.
A startup buys supplies of 20,000/- paying 5%.It charges 15% service tax on the services of Rs. 50,000. Currently it has to pay 50,000*15%=7500 without getting deduction of Rs 1000 VAT already paid on supplies.
Under GST (assuming GST=18%)
|GST on service @18%||9000|
|Less: GST ON SUPPLIES||3600|
|Net GST to pay||5400|
Thus it will bring boon to the startup industries that are mainly in providing services. It will result in reduction of costs thus increasing working capital to the already cash-strained startups
Service and goods sector-The startups under both services and goods sector had to pay both the VAT and the service tax under the VAT regime. The startups had to run around the tax offices to get various registrations under Excise, VAT, and Service tax.
Startups being cash and resource restrained cannot levy devote resources to look after the various tax compliances.GST will subsume all this by reduce the time spent for the tax compliances.
Also, startups in this sector will find it much easier to pay GST on one platform rather than paying both VAT and service Tax.
E-commerce and other online startups – The online presence of startups make it really easy for them to manage GST online. Also, GST is applicable all over India so there is no complication for inter-state movement of goods. All the differential treatments on the different VAT laws of state, VAT declaration and registrations and all other confusing compliances will be removed in GST.
Logistics sector– The logistics sector in India had to maintain multiple warehouses across states to avoid the CST and state entry taxes on inter-state movements. There had been cases where the warehouses had to operate below their capacity hence increasing the operational cost.
GST will unite all states removing restrictions on inter-state movements of goods. This will bring warehouse consolidations across the nation.
Reduction in unnecessary logistics costs will increase the profits for startups involved in supply of goods through transportation.
Manufacturing startups-As opposed to all other startups sector, the manufacturing sector will somehow bear the brunt. Under the past VAT regime, the manufacturing business with a turnover more than Rs.1.50 crore had to pay excise. However, with the implementation of GST, the turnover limit has been reduced up to Rs.20 lakh thus increasing the tax burden for many manufacturing startups.
Thus, GST has proved to be a completely new tax regime already taking India by storm. Businesses, especially startups will face challenges in transition but it will all lead up to lesser compliance to deal with benefiting most.