GST (Goods and Services Tax) is destined to bring the biggest ever transformation in the ways trade, start-ups, established businesses, and industry pay taxes to governments. Paying taxes under the GST may seem confusing, but overall, it will benefit not only taxpayers but also help governments (Central and State) to reign in tax evaders to a large extent. Honest and tech-savvy startups should be happy about this because the taxing system has been streamlined and will be mostly conducted over the internet. GST is almost paperless – from registration to payment, every step happens over the GSTN (Goods and Services Tax Network) portal.
Objectives of GST
The principle objective of GST is to minimize the number of taxes that businesses pay to governments. It seeks to reduce multiples of taxes into one tax that is uniform throughout the country. Secondly, GST is designed to avoid tax on taxes, meaning businesses will pay tax only on the value added to raw materials and services. Start-ups can also hope to grapple with corruption easily because it seeks to eliminate points of contact with the notoriously corrupt bureaucracy in occasions. To the maximum extent possible, every activity – assessment, refunds, registration, and rules have been made transparent and automated with few official interventions.
Benefits to Start-ups and Companies
GST is generally entrepreneur friendly and more so for start-ups. Here are 5 benefits that start-ups will enjoy.
Reduced Provision for Taxes in Working Capital – One of the major problems that startups face is the high level of taxation. Higher taxes mean a higher provision for working capital and resultantly higher interest rates for money borrowed to pay for advance taxes, especially excise duty that needs to be paid before goods are removed from the factory. GST eliminates excise duty and as a result, there is no need to provide for it in the working capital.
Provision for Availing Tax credit on Capital Goods – Setting up a business or a manufacturing facility is a highly capital intensive activity. Acquiring machinery or office equipment means paying substantial taxes. Under the pre-GST regime, start-ups had no options to get back the taxes paid, but GST provides a mechanism to avail tax credit on this. This will help start-up enterprises to tide over initial difficulties that new businesses experience.
Tax Exemption (or reduced taxes) in Certain Cases – Small start-ups with little cash assets can benefit from tax exemption during their initial phase. Firstly new businesses that are too small get an exemption if their turnover is less than two million. This makes new small start-ups more competitive in a fierce market. Smaller start-ups are thus able to compete with bigger established players at least during their initial phase.
Paperless and Transparent Environment – One of the major stumbling blocks in India for startups is dealing with a sequence of the tiring processes. Obtaining licenses, permissions, and tax holidays all require connections with higher bureaucracy. Though many of these issues will still persist, GST will substantially reduce hardships to a great extent. For example, obtaining a GST registration is a matter of waiting for 3 or lesser days and that without visiting your tax office. It has been made paperless with an online application. It means saving time and money and doing away with expensive tax advisory services.
Tax Credit on Supplies – With multiples of tax laws and multiples of taxing points, doing business in India has always been fraught with difficulties. Multi-point taxing has traditionally stifled growth and expansion to a great extent. Big players could circumvent taxes by opening branches in different states to avoid taxes which benefit smaller start-ups never enjoyed. GST has created a level playing field for the big and small to compete on an equal footing. However, the bigger benefit is the tax credit allowance that provides for avoiding double taxation. Tax credit allowance keeps down prices to the maximum possible and as a result, start-ups are able to benefit from it and pass on lower prices to final consumers.
GST is a boon for start-ups and more importantly, it protects enterprises from dishonest officials. Virtually every transaction; especially filing monthly and annual returns are all online and almost instant. The need to wait for months and years to hear the fate of your returns has been totally eliminated thus providing peace of mind to business managers. It makes it easier to focus on core business activities such as marketing and managing receivables and inventories.