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Startups to give GST a thumbs up this year -
Startups to give GST a thumbs up this year
IndiaNotes Team | Published: 17 Mar, 2017  | Source :

The biggest indirect tax reform since India attained independence in 1947, the news on the Goods and Services Tax (GST) sparked a rollercoaster of discussions and debates at the end of 2016 that spilled over to this year as well. Latest GST News reports in India have since then covered the impact of GST on every walk of business; an important one being GST for startups. While Budget 2017 reforms may have been redundant in the case of startups (to an extent), the introduction of GST for startups has small organizations rejoicing.

The Goods and Services Tax will not only uncomplicate the tax system, it will also reduce the distinction between goods and services making them tax compliant, avoid double taxation and set a better system with a ‘one country, one tax’ rule. But a better tax system is not just why GST for startups is making the news. Here’s why -

New entrepreneurs will be able to establish a start up with fewer hassles than before. This is because any new business needs to have a Value Added Tax (VAT) registration number in order to bill clients/customers - if the rates of VAT are centralised then won’t be different processes and fees for operating out of multiple states.

Currently, most states impose taxes on goods that might be manufactured/imported/exported from their state. For instance: A Karnataka based merchant selling embroidered sarees will import the raw materials from Gujarat, send over the material to embroidery artisans based out of Lucknow and finally assemble the product in Karnataka - the merchant is liable to pay taxes in all three states. This tax generally filters down to the end consumer, thus making the product relatively expensive.

A centralised taxing system will simplify this process and integrate all taxes. GST for startups will also help speed up logistics as companies will not have to bear state border tax, easing inter-state transportation. A report from CRISIL has stated that the cost of transporting non-bulk goods is likely to reduce by at least 20 per cent. Additionally, an undisrupted movement of goods across the country, will open opportunities for manufacturers, cementing yet another path for the Government’s ‘Make In India’ initiative.

Besides these important advantages, GST for startups will help in reducing the distinction between sales and services. This will help avoid the problem of double taxation. So restaurants will no longer charge you a service tax and a VAT when you avail of their services. Also, GST will help reduce operating costs for businesses - be it manufacturers or service outlets. Right now, customers are required to pay for taxes that have been borne by each outlet in the supply chain; however, GST is fundamentally a tax on value addition at each stage that is levied at point of sale and not purchase. So the consumer bearing the GST is charged by the last dealer in the supply chain, thus making the product/service cheaper for the consumer and increasing the profitability for a startup.

Additionally, with working capital breaking free from the clutches of various tax refund claims, there will be higher levels of liquidity with startups - giving them more opportunities to grow their business.

But all's not well in this centralised tax paradise, e-commerce startups will have to file quarterly as well as monthly returns and collect the taxes from sales made on their web portal, increasing documentation and administration costs. Naturally, this burden will eventually pass on to customers in the form of higher prices of the products, so an inflation in prices is expected.

But if we look at GST for startups in a broader perspective, eliminating the cascading effect of multiple Central and State taxes, GST would reduce the cost of doing business and increase profitability, which in turn, would attract investments and ultimately help GDP growth. (As stated in a report from CRISIL). And finally, economists have predicted our GDP to reach double digits, so there definitely is a silver lining around cloud.

You can read more of latest business news in India on BloombergQuint.


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