GST & its Impact on Start-up Business
GST, being the most hyped decision to be taken, is an indirect tax reform based on the concept of ‘One Indian nation under One Tax’. As different stNationave different taxation policies which make it all the more complex & difficult to handle which is a major reason why number of start-ups are hesitant to expand their businesses to different states leaving those states with less of industrialization resulting lesser number of jobs. With the implication of GST, government aims to bridge the gap by integrating all taxes, making only one tax to be paid by all the industry verticals. It would further result in simpler tax calculations saving time and energy for entrepreneurs and start-ups to focus on their respective businesses instead of investing time and energy on compliance and paperwork.
Let’s see some of the pros & cons to this concept-
Mentioned are the huge benefits which we can see out of the implication of GST-
• Increase in the bracket for registration-
According to the current VAT structure, any business with a turnover of more than Rs10 lakh has to get VAT registration and pay VAT through the generation of VTIN.
Under GST the limit has been increased to Rs. 20 lakhs which can further benefit small business, start-ups etc which have lesser turnover.
• Online filing process under GST-
From registration & establishment of the company to its tax filing, everything can be easily done online which means reaching out to different tax filing offices will be reduced as everything will be compiled under one GST.
• Relief of taxation for E-commerce start-ups-
There are 100’s & 1000’s of online companies which are working on the online platform. As the sale of such companies is not restricted to one specific geography which leads to tax compliances of different states in which the goods are delivered.
Due to lesser & not on time proof of the documents, lot of such E-commerce business gets hampered which would now get benefit through GST rules.
• Better logistics optimization-
Due to inter-state taxes & other government compliances, many of the start-up companies are forced to have multiple warehouses across the country in order to maintain their logistics & inventory for timely delivery & better customer service.
But as per the analysis, there are a lot of such warehouses which are operating below their capacity.
GST has thus improved the business functioning of such start-ups as many of them have now moved to much convenient & strategic base which can ultimately result in better profits & more convenient logistics.
• Benefits on tax credit on purchases-
GST will help the start-ups to set off the VAT which has been paid on the purchases.
Eg- Suppose if a purchase of office goods is done of Rs.10,000 then a VAT of 5% is applied on that (Rs.10,000*5% = Rs.500). Apart from that suppose if a service of Rs.60,000 is provided then an additional 15% service tax is applied (Rs.60,000*15% = Rs. 9000). The total tax which needs to be paid is Rs.9500 (Rs.9000 + 500 = Rs.9500)
After the implication of GST, an 18% tax would be applicable wherein the paid VAT would be taken into consideration.
GST on the services of 18% on Rs. 60,000 Rs. 10800
GST on office goods (less Rs. 10,000*18%) Rs. 1800
Net GST to be paid Rs. 9000
Now let’s move on to the cons of the concept of GST-
• Effect on the service industry-
Although the other verticals will be benefitted but if we consider the core service industry, then their tax bracket would increase from 15% to 18% under GST.
• Increase in the tax for online booking-
Once GST gets applied, the tax implied on the air fares would directly increase to 18% which will impact the pockets of the travelers unless the airlines absorb the same increase.
Thus, we reach to a conclusion as to why government wants to implement GST which will result in lowering the government generated revenue? Government is actually looking out for a longer term prospect which will increase the business opportunities resulting in increase of the job opportunities & higher economic growth.