The curiosity of what this tax can mean to end consumers and enterprises remains high even after its launch. GST is touted as one of the biggest tax reforms since independence that promises to boost growth and scrap local taxes that add to overhead costs and hamper growth of businesses. Existing businesses had to deposit more than just the income tax such as service tax, excise duty, VAT or some other version of custom duty. All of these indirect taxes have been replaced with GST.
“As I said, we made sure that consumers don’t have to pay more. The net effect of goods and services is not going to be inflationary because once the system of input credits starts the actual incidence is going to be positively impacted.”
Small and medium enterprises (SME’s) are the primary contributors to the growth of the Indian economy. It is also one of the leading development sectors that has created employment opportunities for millions. The number of SME’s operating in India currently stands at three million, which contributes to almost 50 percent of the industrial output and 42% of India’s total exports. The impact of GST is likely to be positive for SME’s as it will reduce a lot of tax collecting intermediaries between them and larger enterprises. It will also open doors for SME’s to be able to compete with foreign competitors such as China, Philippines and Bangladesh. And for all those who want to start on their own in the Indian market, the benefits will be as follows:
1. Ease of starting business
Prior to GST, any business with multi state operations needed VAT registration. Along with this, different rules applied in different states that made processes all the more complicated and taxes higher. All this automatically gets eradicated with GST as now there is a centralized registration that will make starting of a business way easier, irrespective of operations in more than one state. The previous tax structure required businesses with an annual turnover of over Rs 5 lakh to pay a VAT registration fee. Under GST, the basic exemption is Rs 20 lakh and Rs 10 lakh for the north eastern states, which will bring relief to existing traders and encourage small dealers to start businesses. GST also has a composition scheme which lowers taxes for small businesses with a turnover between 20 to 50 lakhs.
2. No more multiple layers of taxation
The fundamental principle of GST is to tax only the vendor’s contribution to the product’s overall value. This same tax is not included in the price of the product in the subsequent chain. Hence, the burden of taxation gets uniformly distributed to all vendors in proportion to their contribution to the end product. This is why vendors at the end of the product chain do not end up getting overburdened with taxation.
3. Higher prospect of market expansion
With multiple layers of taxation for multi state operations, the earlier tax structure limited SME’s from expanding their customer base. GST nullifies this as tax credit gets transferred irrespective of which location the buyer or seller transacts in. This can allow new businesses to expand their reach across borders.
4. Tax credit on purchase
Service industry start ups can now settle off the VAT paid on the purchases that they make with service tax on their sales. This will be a huge factor in reducing costs, and thereby increasing the working capital to the start ups facing cash crunches.
5. Efficient logistics and faster delivery
GST eliminates entry tax for goods and services manufactured or sold in any part of India which will automatically expedites the process of delivery of goods at interstate points and toll check posts. Start ups can reduce a lot of unnecessary logistics costs and help in increasing profits.
6. Online tax filing
The entire process under GST from registration to filing returns and payments has been made online. This will enable start ups to save a lot of time and effort otherwise spent on running around tax offices to get various registrations done. Adhering to tax compliances will also become easier as GST subsumes compliances under taxes like VAT, CST, Service Tax etc.