What GST Means For The Startup Ecosystem?
By Ritu Kochar August 4, 2016
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It took months of haggling and quibbling for this concept of 'one nation, one tax' to become a reality. But yesterday finally marked that historic day in Rajya Sabha, when the Goods and Services Tax (GST) bill was unanimously passed.
The talks of a uniform tax regime were first heard in the year 2000, by the then Prime Miniser Atal Bihari Vajpayee. After a journey of 16 years and many unmet deadlines, BJP has been able to do what they believe, would be the 'biggest tax reform in post-colonial India'. All opposition parties including Congress, and except AIDMK, pledged their support for the bill.
What does GST offer: The GST regime, has over the years promised to subsume multiple levies, and remove cascading effect of taxes, prevalent on businesses so far. In the long run, it would help curb the present fiscal deficit and boost up India's GDP. In the short run, it will build a more conducive environment, for businesses across all sectors. The two initiatives very dear to Prime Minister Modi, 'Make in India' and 'Startup India' would highly benefit from the GST bill as the ease of doing business will promote entrepreneurship in the country.
Save up on your taxes
The bill has been crafted, keeping in mind the federal structure of India, andthus, has been segregated into the Central GST (CGST) and the State GST (SGST). What it means is, all the taxes levied on a product at different stages, from manufacturer to the buyer, will now be subsumed, thereby, easing the burden on the final consumer.
Citing his opinion on the GST constitutional amendment bill, R Chandrashekhar, President, NASSCOM stated that, "The passage of the amendment bill will unarguably usher in the most impactful tax reform this country has seen. The services industry at large was administered under a single authority in the centre under the Service Tax regime. The simplicity and certainty that it offered needs to be emulated in the GST law that States and Centre adopt subsequently. The new tax regime should also be future ready and cater to the needs of the emerging digital economy in the country."
A boon to online businesses
This tax regime will bring about uniformity in the business world as now an entrepreneur only needs to get a VAT registration from State's sales tax department to start business in a new state. This reduces the numerous procedures and costs in between. The Goods and Services bill will prove to be a boon to the e-commerce industry in India, ridding them of the several gnawing tax regulations in several states.
Vishwavijay Singh, Co-Founder of Salebhai.com said validating the point, "The existing indirect tax laws including VAT/CST, excise and service taxes have not been able to accommodate the evolving e-commerce marketplace business model. The sector faces a tough time categorising offerings into goods or services to charge VAT/CST or service tax. It also has to grapple with problems related to permits and statutory forms for inter-state movement of goods. Few state governments have come up with additional taxes for e-commerce, which is burdening both customers and companies. There is basically a lack of clarity on e-commerce transactions under existing tax legislations. Once the GST Bill is passed, there will be a national-level GST which will be easy to follow. We are eagerly looking forward to it to tide over the current problems."
As for Health startups, GST will bring in much needed rationalization of indirect taxes, says co-founder at CareOnGo, Aditya Kandoi. "It will create homogeneity towards levy of state taxes and claim of input tax will be much more seamless", he added. "Currently CST is a major laggard when it comes to inter-state transfer as it doesn't offer any input tax to the trader and hence makes it unviable to buy from different states and the states would now become a party to share tax revenues that is coming from the services industry which presently is purely under centre."
Sandeep Aggarwal, founder and CEO of Droom, believes that GST is not just tax simplified but a tax regime that no longer ignores the existence of a digital economy and the 21st Century commerce. He says, "Implementation of GST is a great move for e-commerce players. At present, there is a maze of indirect taxes. GST will help eliminate the ambiguity that currently exists and will help to build a unified market across India. This historical economic reform is expected to enhance the operational efficiency of the online business space. Hope government does not pass the burden of implementing GST, operating costs and technology build out to Ecommerce companies who to begin with have scanty profit margin of not making loses."
Now that there is a centralized tax system with GST, the inter-state commercial transport will get cheaper too. This means saying goodbye to having your parcel stuck at small checkpoints for days due to tax issues. As per a CRISIL analysis, GST can reduce logistics costs of companies producing non-bulk goods (comprising all goods besides the primary bulk commodities transported by railways - coal, iron ore, cement, steel, food grains, fertilizers) by as much as 20 percent.
Founder of Paytm, Vijay Shekhar Sharma was especially content with the GST bill being passed, and is ready to even look away the extra work in the administration of business. With the Paytm bank coming, it will heavily reduce managing cost and increase the number of deliveries on the online platform. He said, "Even though GST means new ways to calculate tax and some bits of extra work, I think it is overall great for online businesses because today, due to complexities of entry tax and other processes, customers from certain states could not order some items from the online shopping destinations. I am happy that government has taken all the efforts to pass and implement GST."
All being said, the real value will come in when GST is eventually put into effect which may take a couple of months and we would have to wait and if it proves to be as fruitful as it seems now.
Ritu Kochar
Ritu used to work as a Feature writer for Entrepreneur India.
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