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This article explains impact of GST on Small and Medium Enterprises. GST has
promised to revolutionize the Indian tax system.
At present, the total tax collection in India is around 14.5 Lakh Crore, of which
34% is indirect tax. Indirect taxes include service tax, stump duty, customs duty,
VAT, etc. It refers to the collection of tax indirectly by the Government of India. In
most of the developing countries, the share of indirect tax is higher than the direct
tax. However, in the developed countries the share of indirect tax is much lower.
Therefore, the new GST implementation will allow the government to have a better
grip on the taxpayers. This should be capable of evolving the entire tax system.
How will GST help small to medium enterprises?
GST is meant to bring every indirect form of tax under one roof. For small and
medium sized businesses, owners or manufacturers have to take care of different
taxes and have to run to various departments to fulfil all the tax-related
documentations. Some file different taxes biannually, annually, half-yearly, etc.
The more the departments, the more is the harassment. Currently, the total tax
levied by the central and the state governments add up to 32%, but with the
implementation of GST, the business owners have to pay a much lower tax of
around 18-22 percent. Moreover, they do not have to pay different taxes to various
departments. It makes the job very much easier for every business owner.
Direct impact of GST on small and medium enterprises
GST will help and ease the process of starting a business in India. Earlier, every
business in India was required to obtain VAT registration, which differs in
every state, and the rules and regulations are different. Thus it was a very
confusing procedure. However, under GST, the businesses have to only register
for GST which will have a centralized process, similar to service tax.
Currently, for any business, it is mandatory to make a VAT payment if the
annual turnover is more than 5 lakh in few states and 10 lakhs in few other
states. This difference in various states creates confusion. Under GST a
business does not have to register or collect GST if the annual turnover is 10
lakh. This is applicable to every state. This will allow many small businesses
which have a turnover between 5 lakh – 10 lakh to avoid applying for the GST
return.
GST allows small and medium business to do business with ease in India, due
to the less complexity. The distinction between the services and goods will be
gone, and this will make compliance easier.
REF: https://www.dbs.com/in/sme/businessclass/articles/economic-
outlook/impact-gst
Amidst economic crisis across the globe, India has posed a beacon of hope with
ambitious growth targets, supported by a bunch of strategic undertakings such as
the Make in India and Digital India campaigns. The Goods and Services Tax
(GST) is another such undertaking that is expected to provide the much needed
stimulant for economic growth in India by transforming the existing base of
indirect taxation towards the free flow of goods and services. GST is also expected
to eliminate the cascading effect of taxes. India is projected to play an important
role in the world economy in the years to come. The expectation of GST being
introduced is high not only within the country, but also within neighboring
countries and developed economies of the world.
Benefits of GST to the Indian Economy
Removal of bundled indirect taxes such as VAT, CST, Service tax, CAD, SAD,
and Excise.
Less tax compliance and a simplified tax policy compared to current tax
structure.
Removal of cascading effect of taxes i.e. removes tax on tax.
Reduction of manufacturing costs due to lower burden of taxes on the
manufacturing sector. Hence prices of consumer goods will be likely to come
down.
Lower the burden on the common man i.e. public will have to shed less money
to buy the same products that were costly earlier.
Increased demand and consumption of goods.
Increased demand will lead to increase supply. Hence, this will ultimately lead
to rise in the production of goods.
Control of black money circulation as the system normally followed by traders
and shopkeepers will be put to a mandatory check.
Boost to the Indian economy in the long run.
These are possible only if the actual benefit of GST is passed on to the final
consumer. There are other factors, such as the seller’s profit margin, that
determines the final price of goods. GST alone does not determine the final price
of goods.
Conclusion:
GST is indeed the need of hour for Indian economy. The people are sick of
complying with multiple laws, and many times they are penalized for not
complying the laws they are not even aware of. GST will ensure broader tax base,
and hence covering most of the dealers into its ambit. This will create a unified
market and credit flow chain will work properly without any hindrances. It will
also add up to the revenue generation for the Government as many unorganized
sector will get organized once GST is implemented.
GST will also motivate foreign direct investors to invest and setup industry here in
India. This will create job opportunities, and for a developing economy like India
it’s always a favorable situation. It will make the supplies being priced
competitively so benefitting the ultimate consumers.
After analyzing all the pros and cons, we as an Indian citizen should welcome the
upcoming change with open arms, after all we want to see India being entered
down in the list of super powerful economies, and GST is one of the biggest
measure of making that happen.
The President of India approved the Constitution Amendment Bill for Goods and
Services Tax (GST) on 8 September 2016, following the bill's passage in the
Indian parliament and its ratification by more than 50% of state legislatures. This
law will replace all indirect taxes levied on goods and services by the central
government and state government and implement GST by April 2017. The
implementation of GST will have a far-reaching impact on almost all the aspects of
the business operations in India. With more than 140 countries now adopting some
form of GST, India has long been a stand-out exception.
GST is a value-added tax levied at all points in the supply chain, with credit
allowed for any tax paid on input acquired for use in making the supply. It would
apply to both goods and services in a comprehensive manner, with exemptions
restricted to a minimum.
In keeping with the federal structure of India, it is proposed that the GST will be
levied concurrently by the central government (CGST) and the state government
(SGST). It is expected that the base and other essential design features would be
common between CGST and SGSTs for individual states. The inter-state supplies
within India would attract an integrated GST (IGST), which is the aggregate of
CGST and the SGST of the destination state.
The following are the salient features of the proposed GST system:
Thinking about GST Pros and Cons? The Goods and Services Tax is a unified,
destination-based tax that was implemented in India from July 1, 2017 to effectively
replace all the existing indirect taxes, including service tax and vat. The GST has
directly affected the businesses involved in the selling/buying of good and services, as
well as consumers, in the country.
Whereas the prices of some goods/services have gone down, some other facilities have
become costlier in the post-GST regime. There are some predefined tax rates for
various commodities under GST and some basic items like food, milk, etc., have been
kept tax-free, while petroleum products have not yet been included under the cover of
GST. The impacts of GST are being noticed as we move forward into this new tax era.
Let’s discuss the major GST Pros (advantages) and Cons (disadvantages) we
have experienced so far.
Positive Impacts (Pros/Advantages) of GST Implementation
GST is expected to build a more transparent and corruption-free tax system in India.
It is easy to start a business in the post-GST regime and tax regulations are easier than
before.
Composition mechanism is there to reduce the tax burden from small businesses and
startups.
Input credit (ITC) mechanism ensures an uninterrupted flow of cash for businesses and
reduced price of goods/services for the end consumers.
The merging of all the indirect taxes makes it easier to process the tax payment for the
government as well as for the taxpayers.
Tax harmonization
More simplified movement of goods and/or services between states and within the
country.
GST is calculated on the total amount, irrespective of the type of sales and services.
GST has eliminated the cascading effect of taxes by introducing a unified tax system.
Since it is a destination based tax, the tax will only be paid by the consumer upon
delivery of goods/services.
The implementation of Goods & Services tax puts India in the line of international tax
standards, making it easier for Indian businesses to sell in the global market.
GST is expected to reduce the price of production, operational and others costs that will
benefit the end consumers.
The cost of collecting the tax is reduced thus resulting in a higher revenue for the
government.
GST has the mechanism of integrated tax that makes sure that the tax burden is split
impartially between manufacturing goods and services.
The complexity of tax compliance is reduced as all the returns are being filed and taxes
are being paid through a single platform.
Since all the records and data are now available on a single platform, it has become
easier for the tax authorities to identify and deal with tax evasions.
One major benefit of GST is that the government is now receiving more taxpayer
registrations than ever before.
Negative impacts (Cons/Disadvantages) of GST in India
As for the disadvantages, GST has a few. The implementation of GST in India has
created troubles for some sectors by increasing the cost of manufacturing and/or supply
or by reducing the value of the product. For example, the value of some second-hand
items and refurbished items diminished due to the increased cost of processing or
supply.
Let’s take a brief look at the disadvantages of GST, as reported so far.
GST compliance and tax filing has increased the implementation cost for businesses, as
they are required to invest in computers, accounting (GST) software and/or trained GST
experts (CAs and accounting experts).
The process of GST compliance is also proving daunting as most businesses are not yet
fully aware of the rules, provisions and processes of the new tax system, including the
process of return filing, GST registration, returns filing schedule, invoicing and billing,
etc.
The overall cost of doing business is going to increase, at least in the first few months of
GST.
The implementation of GST in the middle of the financial year is creating a lot of
confusion among business, as to whether to follow the old tax rules or new ones or both.
Many businesses, especially small businesses and startups, do not usually have the
money or tech resources to get compliant with the digital GST system. A cloud-based
(online) GST software like theGen GST could be a perfect solution to this problem.
The tax relaxation limit for small manufacturing businesses, which was 1.50 crores
earlier, is now Rs. 20 lakh under the GST system. This has effectively increased the tax
burden for such businesses.
No clarification about tax holidays has further increased operation costs for textile,
pharma and other manufacturing industries.
The chaos among businesses has ended up creating a disruption in the industry.
Consumers are not very hopeful about GST benefits and implementation and therefore,
they are reluctant to adapt to the new system.
The tax rate has been increased for many products, thus increasing their costs.
Although there is a provision of input credit in GST, some businesses are not willing to
pass on its benefits to their consumers.
The cost of refurbishing has increased due to increased tax, thus increasing the price of
refurbished products.
Businesses are required to have separate registrations for multiple business entities in
different states. It will increase the burden of tax compliance.
GST has reduced the tax revenue of some states as they are now required to share
revenues with the central government.
The tax will be paid by the end consumer, which makes it a non-consumer-friendly tax
system.
Conclusively, the GST has both its pros and cons, and it is expected to bring a
positive change in the tax system of India. For now, we should hope for the best. Follow
our GST Helpline for help and guidance regarding the implementation of GST.
Since GST’s implementation over the past few days, startups have been
pinging @askGST_GoI, the official Twitter handle of the Government of India, for
clarity on this new tax reform. As their enterprises are vulnerable to any major
changes in economy due to a new policy implementation, founders and employees
of these companies are extremely concerned about the impact of the four tax
slabs of 5%, 12%, 18%, and 28% that have been specified in GST. Many Indian
businesses have limited capital and resources at their disposal, meaning that any
confusion can quickly escalate into panic.
Along with these concerned parties, millions of customers are wondering about the
impact of this new tax system on the amount of money they will need to shell out to
avail of their preferred goods and services.
In this article, I'll attempt to break down the impact of GST on the most popular
sectors of India's startup ecosystem, including real estate, e-commerce, hospitality,
smartphones, and ride hailing.
Real Estate
Under the new tax structure, due to the input credit benefits that most builders will
get on the key raw materials they buy, the base price of property projects launched
post 1 July 2017 will be comparatively cheaper. Buying under-construction
properties will attract a net effective rate of 12% as against the earlier rate of 5.5%
(including value added tax and service tax). Real estate players such as Proptiger and
Quikr want to pass this cost benefit on to property buyers. “For new projects with
100% input credit passed to the buyer and land cost being 50% of the project cost,
we expect property prices to fall by around 1% in western and northern markets and
around 3% in southern markets,” said a report by Edelweiss. However, prices of
ready-to-move-in apartments with completion certificates, before implementation
of GST on 1 July, would remain steady as these properties are out of the GST ambit.
Any price change in the segment will depend purely on demand and supply.
E-commerce
E-commerce websites such as Flipkart and Amazon.in will have to collect TCS (tax
collected at source) at a fixed 1% rate, and pay this collection to the sellers listed on
their websites. This is likely to impact prices and make online shopping more
expensive. Though the latest notificationissued by the government stated that the
provisions of “TDS (Section 51 of the CGST/SGST Act 2017) and TCS (Section 52 of
the CGST/SGST Act, 2017) will be brought into force from a date which will be
communicated later.”
Also to deal effectively with GST, e-commerce platforms are regularly engaging and
training the sellers on their stores. Commenting on GST’s impact Rajiv Kumar,
Founder, e-commerce website StoreHippo has stated: “We are thrilled to announce
the reformation of our tax engine in accordance to GST. E-Commerce platforms
need to provide flexible and powerful tax solutions after the implementation of GST
and StoreHippo facilitates this through its new move, aimed at simplifying GST for
all involved.”
Indian tourists enjoy Shikara, a traditional wooden boat, with the backdrop of snow
covered mountains at the Dal Lake in Srinagar, India. (Photo Credit: AP Photo/Dar
Yasin)
Benefits of GST
GST has been envisaged as a more efficient tax system, neutral in its application and
attractive in distribution. The advantages of GST are:
Wider tax base, necessary for lowering the tax rates and eliminating classification
disputes
Elimination of multiplicity of taxes and their cascading effects
Rationalization of tax structure and simplification of compliance procedures
Harmonization of center and State tax administrations, which would reduce duplication
and compliance costs
Automation of compliance procedures to reduce errors and increase efficiency
One point single tax: There would be focus on business rather than worrying about their
taxation that may crop at later stages. This will help the business community to decide
their supply chain, pricing modalities and in the long run helps the consumers being
goods competitive as price will no longer be the function of tax components but function
of sheer business intelligence and innovation.
Reduces average tax burdens: The cost of tax that consumers have to bear will be
certain and it is expected that GST would reduce the average tax burdens on the
consumers.
Reduces the corruption: As the number of taxes reduces so does the number of visits to
multiple departments reduces and hence, the reduction in corruption.
In all cases except a few products and States, there would be uniformity of tax rates
across the States.
The proposed GST regime is a half-hearted attempt to rationalize indirect tax structure. More than
150 countries have implemented GST. The government of India should study the GST regime set up
by various countries and also their fallouts before implementing it. At the same time, the government
should make an attempt to insulate the vast poor population of India against the likely inflation due to
implementation of GST. No doubt, GST will simplify existing indirect tax system and will help to
remove inefficiencies created by the existing current heterogeneous taxation system only if there is a
clear consensus over issues of threshold limit, revenue rate, and inclusion of petroleum products,
electricity, liquor and real estate. Until the consensus is reached, the government should resist from
implementing such regime.