The Goods and Services Tax (GST) likely to be passed in Rajya Sabha today has been a long time coming. Having been introduced in the 2006-07 Union Budget, it was to have been implemented in 2010-11. Given the work involved even once the bill is passed - rates need to be fixed, rules need to be framed, the Union and state governments must reach a consensus, infrastructure for registration and return filing needs to be in place - we can expect its implementation to be still some time away. In the meanwhile, however, let’s understand why young businesses should be very happy about the passing of the GST.
For young businesses, the GST is ideal. If there’s anyone who could benefit from the time and money saved on compliance work, it’s startups.
Currently, VAT applies uniformly to businesses with a turnover greater than Rs. 5 lakh in most states. Operations with revenue of Rs. 10 lakh to Rs. 50 lakh can opt for the VAT Composition Scheme (which would lower the tax rate), but that has criteria on its own and isn’t suitable for everyone. With the GST, however, tax burdens will be heavily reduced for businesses with a turnover of Rs. 10 lakh to Rs. 50 lakh, and those with revenue of Rs. 10 lakh need not apply for GST at all.
To check Ease of Doing Business in any country, the main criterion is the number of steps involved in starting a business. Given that most Indian entrepreneurs need to register a company, get a service tax registration, a VAT registration in every state it operates from, and much else, India fairs poorly. The GST is a game-changer in this sense. It requires entrepreneurs to get just one license for their company and, once that’s done, it won’t matter just how many states you do business in, so long as you pay the tax. Business expansion will now be seamless.
Let’s take the example of a restaurant owner. Such an entrepreneur would need to apply for VAT Registration once his/her revenues reach Rs. 5 lakh, service tax at Rs. 10 lakh, pay octroi on goods entering the state at one rate, and entertainment tax if any live act is playing at the venue. This is too much to keep track of. With the GST, there will just be one registration, a common tax rate. Complete uniformity. For accounts departments, tax payment will be much simpler, as will return filing.
Many entrepreneurs do not currently beyond state borders because of issues with taxation and clearance. There are needless fines and other nuisances. With the GST, all states in India will have the same tax rate and bring down logistical costs for many businesses.
A much-needed reform of India’s labyrinthine indirect tax system, the GST bill will have a radical impact on Indian businesses with regard to all taxation matters. The tax structure of products and services will change, taxes on products and services will be streamlined, the effort involved in compliance will reduce substantially and tax payment will be made more efficient.
One tax: The GST will consolidate Central Excise Duty, Service Tax, VAT, Central Sales Tax, Customs Duty, Central Surcharge & Cess, Octroi, Luxury Tax, Entertainment Tax, Purchase Tax and a few other indirect taxes. The GST will apply on all goods and services, barring alcohol. Even petrol and petroleum products will eventually be subject to it.
One decision-maker: Taxes such as VAT are currently decided by every state, making compliance complicated for companies with operations pan-India. With the GST, power to enact laws will only be with the Union. The centre will also decide the levy of taxes on inter-state supply of goods and services. As per the GST, a 1% origin-based tax will be earned by the state government from where the goods are being transferred.
Ease of Doing Business: Given its importance to the world economy, India has scared away many entrepreneurs with its painful compliance requirements. The GST will change this for Indian and foreign entrepreneurs looking to set-up shop in India.
The above is an authored article by Hrishikesh Datar, CEO of Vakilsearch.com, India’s largest online facilitator of legal services and tax registrations.
[Top Image - geoffrey wiggins / Shutterstock.com]
Impact on Young Businesses
For young businesses, the GST is ideal. If there’s anyone who could benefit from the time and money saved on compliance work, it’s startups.
Lower Taxes on Small Businesses:
Currently, VAT applies uniformly to businesses with a turnover greater than Rs. 5 lakh in most states. Operations with revenue of Rs. 10 lakh to Rs. 50 lakh can opt for the VAT Composition Scheme (which would lower the tax rate), but that has criteria on its own and isn’t suitable for everyone. With the GST, however, tax burdens will be heavily reduced for businesses with a turnover of Rs. 10 lakh to Rs. 50 lakh, and those with revenue of Rs. 10 lakh need not apply for GST at all.
Simpler Compliance, Easy Expansion:
To check Ease of Doing Business in any country, the main criterion is the number of steps involved in starting a business. Given that most Indian entrepreneurs need to register a company, get a service tax registration, a VAT registration in every state it operates from, and much else, India fairs poorly. The GST is a game-changer in this sense. It requires entrepreneurs to get just one license for their company and, once that’s done, it won’t matter just how many states you do business in, so long as you pay the tax. Business expansion will now be seamless.
One Registration, One Return:
Let’s take the example of a restaurant owner. Such an entrepreneur would need to apply for VAT Registration once his/her revenues reach Rs. 5 lakh, service tax at Rs. 10 lakh, pay octroi on goods entering the state at one rate, and entertainment tax if any live act is playing at the venue. This is too much to keep track of. With the GST, there will just be one registration, a common tax rate. Complete uniformity. For accounts departments, tax payment will be much simpler, as will return filing.
Inter-state Trade Made Simple:
Many entrepreneurs do not currently beyond state borders because of issues with taxation and clearance. There are needless fines and other nuisances. With the GST, all states in India will have the same tax rate and bring down logistical costs for many businesses.
Why GST is Important
A much-needed reform of India’s labyrinthine indirect tax system, the GST bill will have a radical impact on Indian businesses with regard to all taxation matters. The tax structure of products and services will change, taxes on products and services will be streamlined, the effort involved in compliance will reduce substantially and tax payment will be made more efficient.
One tax: The GST will consolidate Central Excise Duty, Service Tax, VAT, Central Sales Tax, Customs Duty, Central Surcharge & Cess, Octroi, Luxury Tax, Entertainment Tax, Purchase Tax and a few other indirect taxes. The GST will apply on all goods and services, barring alcohol. Even petrol and petroleum products will eventually be subject to it.
One decision-maker: Taxes such as VAT are currently decided by every state, making compliance complicated for companies with operations pan-India. With the GST, power to enact laws will only be with the Union. The centre will also decide the levy of taxes on inter-state supply of goods and services. As per the GST, a 1% origin-based tax will be earned by the state government from where the goods are being transferred.
Ease of Doing Business: Given its importance to the world economy, India has scared away many entrepreneurs with its painful compliance requirements. The GST will change this for Indian and foreign entrepreneurs looking to set-up shop in India.
The above is an authored article by Hrishikesh Datar, CEO of Vakilsearch.com, India’s largest online facilitator of legal services and tax registrations.
[Top Image - geoffrey wiggins / Shutterstock.com]
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