By Nishant Kaul, Espark-Viridian, India
‘Veda Vyasa’, in his Sanskrit epic of Ancient India Mahabharat conveyed that ‘Tax be such, which should not prove to be a burden on the subject; the Government should maneuver like bees, which collect honey without causing harm to the flower.’
Goods and Services Tax (GST) is the latest maneuver of the Indian Government to aid businesses, by reducing the tax burden. It is a system of taxation, which merges most indirect taxes (Excise, Service tax and VAT) into a single system of taxation. Currently, the GST tax system is decentralized and carried out at three different levels in the country, namely- center, state and municipal. It allows GST-registered businesses to claim tax benefits (tax credit) and pay taxes only on the value added at every stage of production. In GST, a consumer pays the final tax, but an efficient input tax credit system ensures that there is no cascading of taxes.
Furthermore, the simplicity of GST would lead to easier administration and enforcement. From a business point of view, the biggest advantage would be seen in the reduction of the overall tax burden on goods; which would further reduce the cost to customers, creating greater scope for revenue maximization for businesses.
Coined as the biggest tax reform since the economy began to open up 25 years ago, it is said that GST is not merely a change but a development which is likely to impact all aspects of business operations in the country, for instance, pricing of products and services, Supply Chain Management, Accounting and Finances and Information Technology. However, it is notable that GST is not a CSR initiative by the Government, but purely a revenue augmenting measure which is aimed at generating the same revenue that it is collecting in its present Non-GST regime.
Be GST Ready
As a startup, it is crucial to understand what GST would mean to your business. Depending on the operational sector and operating geographies, changes might have to be substantial and may require proactive planning. The best way for a startup and an entrepreneur to be ready for GST compliance is advocacy for best corporate practices, gearing up for changes in procedures, training, educating teams and developing IT systems for impact analysis of all numerical data.
One of the key facets of any startup is its finances. Every startup focuses on improving its growth by cutting through cost inefficiencies. GST is expected to have a positive impact, as it provides flexibility in pricing, room for expansion in profit margin and stimulus to the startup’s bottom line growth. According to the study conducted by Internet and Mobile Association of India, India’s e-commerce market is estimated to have crossed $30 billion crores in 2016. The report further claims that India is expected to generate $100 billion online retail revenue by the year 2020. Though the sector has witnessed tremendous growth and is expected to grow further, many e-commerce ventures have faced pressure to ensure cash flows.
The GST initiative under ‘ease of doing business’ in India, claims to reduce such pressure and for the first time, the government has taken an initiative to regulate online businesses, which have largely been unregulated. Many analysts are of the opinion – that if GST is implemented correctly, India will gain a higher position in the ‘ease of doing business’ index maintained by the World Bank and will boost foreign investments into the startup ecosystem. According to the analysis by CRISIL, this will further boost the GDP growth.
Although GST is at the very initial stage of implementation, startups are advised to be proactive in the business decisions for GST transition. For startups in an e-commerce marketplace, smooth transition into the new GST regime would require:
Impact Identification– identify areas of impact across various processes of a business and further assess GST impact under identified business scenarios.
Transition and Testing– develop migration and transition plan. Thereby, conduct compliance testing and quality assurance.
Designing a Route Map– design future processes and plans to keep the business GST ready with the help of technology and trained people.
One of the major benefits of the GST regime is it’s transparent and easy to understand the system. Many startups lack dedicated resources to look after compliance. Hence, under the GST regime, all compliance has been streamlined and made simple for the benefit of entrepreneurs.
Though various rules and procedures are yet to be finalized, it’s safe to believe that GST supports other initiatives like Digital India and Startup India; thus creating more opportunities to capitalize on, by reducing the overall tax burden and revenue maximization. Despite a few complexities and a government revenue augmenting measure for earning the same or higher inflow from taxes, GST remains to be the friendliest tax reform in India creating transparency, efficiency, and more growth.