The whole GST debate has been going on since forever. The Goods and Services Tax (GST) bill, which was first introduced in the 2006-07 Union Budget and was scheduled to be implemented in 2010-11, was finally passed in the Parliament in August last year (2016). While the government is now mulling over the list of over 5,000 goods that will be taxed under the upcoming GST, the Indian Startup Community has a mixed feeling about the whole bill and the impact it will have on their businesses.
While a majority of the startups believe that as and when the bill comes into action, it will help in reducing cross-border corruption between states, simplify the currently complicated taxation process, and let them claim the credit on taxes paid on expenses in their companies. On the other hand, Indian ecommerce biggies like Flipkart, Snapdeal and Amazon are worried about the rules related to tax collection at source, or TCS, which is a provision in the GST (Read Here).
From July 1, 2017 onwards, major taxes in India like excise duty, octroi, service tax, special additional duty and VAT will be subsumed into a single tax called GST.
The move might increase compliance in the short-term as sellers would have to file a return thrice in a month, compared to the current process which requires them to do this once in six months. According to experts, when the bill comes into action, sellers would have to report their monthly sales by the 10th of each month, purchases by the 15th and a consolidated statement by the 25th of each month.
Grocery retailing startups are particular happy with the government’s GST Bill as the government has allowed 100 percent FDI in food retailing. These startups have a lot of service tax credit, and once the bill comes into play, this service tax credit will get converted into GST credit. As of today, they are not able to offset service tax credit against anything else. Hence, GST will give them a lot of tax advantage.
Logistics sector to be a huge Winner
The GST will result in the abolition of a lot of taxation bottlenecks at state borders and make the whole of India one single market. It will also help in reducing the currently prevalent price anomalies between different states in the country.
Taxation software startups are also going to see a boom in the business. Since many Indian startups are in the e-commerce business and their logistic costs goes up with 11 categories of taxes levied on the road transport sector, GST can help them in drastically reducing their logistic costs by as much as 20 per cent. A lot of online marketplaces have already started educating their sellers on GST compliance.
Indian startups currently operating in manufacturing sector have to follow a number of state regulations besides having to pay state taxes. In addition to this, many states have a threshold beyond which startups have to register for VAT, if a startup has a turnover of Rs 5 lakh. But, under the GST, the threshold is Rs 20 lakh.
Sellers and marketplaces have Mixed Feelings
While online sellers are joyous about GST as they will be able to offset total tax liability against tax paid on expenses such as office stationary etc., which was currently not possible.
However, marketplaces such as Amazon, Flipkart and Snapdeal have voiced their concerns over the 2 per cent tax collection TCS, stating that it should be sellers who should be paying this tax.
The GST bill is most likely to benefit e-commerce users as the movement of goods between states will become faster and cheaper.