Impact of GST on startups and small businesses
After years of cumulative effort and cooperation of the States and the Center, GST is set to roll out from the 1st of July, 2017 and now that the finals bits are in place, we conclude that Startups and Small Businesses , in line with the ‘Make in India’ initiative, stand to really benefit from the same. In what ways it is to be benefited is illustrated below:
TAX BENEFITS: The taxable limit under GST is, if the Aggregate Turnover is over 19 lakh then the business is eligible to register on the GST Portal and as soon as the aggregate turnover exceeds 20 lakh, the business becomes liable to pay GST. The aggregate turnover has however has been kept lower for the north-east states at 9 lakh for registration and 10 lakhs for paying taxes. The reason for the lower aggregate turnover is that if it was kept at par with the rest of India the tax collection by these states would reduce by 80% in relation to the present tax collection and as such these states would lose revenue which would in turn affect their revenue and capital expenditure.
Aggregate turnover, as defined in the GST Act in the clause (3) of the defining Section 2, is the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) exempt supplies, goods or services and services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes Central tax, State tax, Union Territory tax, integrated tax and cess.
This means that under GST, small businesses and startups which have a small financial base and income are exempted to pay tax which is greater that the present tax regime and as such the Startups and small businesses stand to benefit.
INPUT TAX CREDIT: Another important and lucrative feature under GST is that although startup and small businesses with smaller financial and capital base are exempted from paying taxes they have the option of still registering on the GST portal and availing the benefits of GST like the Input Tax Credit. Under the incumbent tax regime, there was a burden on producers that was subsequently passed on to consumers under which taxes paid on inputs by the producer could not be set off against the subsequent output VAT to be paid due to multiple indirect taxes and a cumbersome regime.
This problem has been addressed by GST under the Input Tax Credit Provision under which there is smooth transfer of credit throughout the entire product chain from input to consumption. This means that startups and small businesses can get input tax credit against taxes paid on office supplies, etc.
ONLINE EASY, LESS EXPENSIVE PROCEDURE: GST procedure is online and return filing is smooth and easy. As startups and small businesses are aiming towards building a sound financial ground, and to provide ease in doing business, GST provides that with a portal to submit your returns on, there is relaxation in the invoicing measure incorporating the uncertain nature of business, and due to this IT supported network a series of costs have been reduced.
REDUCED OPERATING COSTS: The incumbent tax regime had a series of problems that inflated operation costs like the time spent in the transportation of goods and the costs incurred due to octroi and entry tax. It is especially more in the case of perishable goods and this was affecting the interstate trade and the small businesses were finding it more difficult to branch out and grow.
On a wider scale this also inflated buffer costs and inventory costs and subsuming this within the GST would facilitate faster connectivity of the business sector throughout the country, increased trade which would reduce the operating costs of startups and small businesses.