India
is currently the 3rd largest startup superpower in the world and with projections of high
paced growth for them;there is only one way
ahead – UP.
There
is no denial that introduction of Goods and Service Tax was not in the ideal
course as intended and expected. Yet it is worthwhile to note that the
challenges rising are being responded to by the GST council in an efficient
manner in form of amendments, notifications and clarifications. In the ever
evolving economy, active steps according to the need of the hour are essential.
Every aspect and content of economy is to be researched for and the necessary
advancement may be made accordingly.
What is GST?
Goods and Services
Tax is an integrated, destination based indirect tax on consumption of goods
and services, levied at every stage, on the value added, right from manufacture
up to the final consumption, the burden of which will be on the final consumer.
A dual GST system has been introduced in India
from 1 July 2017. This shall facilitate the ease of doing business, better
compliances and a well structured tax regime. It does not differentiate between
goods and services and is expected to reduce tax evasions.
What
is Start-up?
A startup
company is a newly formed entrepreneurial unit keeping in mind the perceived
demand for a particular product or service which has not been addressed at
large and developing a viable business setup to earn profits from the gap.
The
start-ups, like the other sectors, have faced both positives and negatives from
the GST implementation.
What are the Positives of GST on Start-ups?
1.
Reducing the
complexities
a consolidated form of tax instead of
variedtaxes at both central and state level shall definitely brings down the
complexities involved in dealing with the tax structure.
An easier GST registration which will call for simple
scaling shall bring down the costing of the start ups.
It shall not only bring in an ease of running and developing a startup but also
to encouraging initiation of a new unit. Fewer tax computations happens to be a
positive of GST.
In addition to that, all the procedures are online and frequent steps are being
taken to ensure a straight forward and less time consuming mechanism to be in
place.
2.
Reduction of Tax
Burden:
The threshold for GST registration is 20 lakhs annual turnover. This is likely to exempt many
start ups from the registration, and the profits shall be positively affected.
3.
Easier invoicing
and consolidated taxing is another benefit. The goods and services are all treated as one. The
multiple taxes to be dealt with have now come under an umbrella. This shall
bring an ease into the management and functioning of start ups.
4.
Logistic costs:The big companies
were able to keep in place a strategy to help them to avoid the inter-state
taxes, which were not only high but also unreasonable; which hampered the
budgets of the small businesses and start-ups. Introduction of GST has now
benefitted them to negate these logistic
costsand providing a smoother road.
The entry taxes and complex procedures while entering in other states, leading
to delays, has always prevented the expansion to otherstates, which now will not
be an obstruction.
5.
Compliances: Examining all
the aspects, it is clear that the compliances required under this scheme are
far less than earlier. Thus the time, cost and other resources dedicated to the
compliances shall decrease substantially.
What are Possible Negatives of the GST Regime on Start-ups?
Along with there being
positives, which shall benefit the business of start-ups in long run, there are
some concerns that are being faces today:
1. Being a fairly new regime, Goods and Services Tax has brought confusion
regarding GST registration procedures, exempted limits and various other
aspects. With regular changes and notifications being published, a little
disorganization for the time being is expected.
Most start ups are not equipped with enough tax and legal expertise. This may
result more manpower and resources required to be dedicated.Though in long run,
after the clouds of confusion have dispersed, there will be no looking back.
But for the time being, the start-ups need to focus on both, development of
their unit as well as the catching up with this latesttax regime.
2. GST
has increased the tax burden for manufacturing startups.Under
the previous laws, only the manufacturing business with a turnover more than Rs
1.50 cr had to pay the excise, whereas now, the limit has been setto Rs 20 lakh,
which is drastically lower than earlier.
3. E-commerce
Ventures require to obtain GST registration mandatorily and no threshold has been
set for them. This is bound to hamper those start ups with financial constraint
in respect to investments.
4.
The provision of
Reverse Charge: Here, it isthe receiver who becomes liable to pay the tax,
i.e., reversal of the chargeability. If
a vendor do not have GST registration, supplies goods to a person who is
registered, then Reverse Charge shall apply i.e. the receiver shall GST not to
the supplier, but directly to the Government. The registered dealer paying GST
under the reverse charge has to do self-invoicing for the purchases
made.For Inter-state purchases, the buyer will require to pay IGST and CGST and
SGST has to be paid for Intra-state purchase.
Also, for an e-commerce operator who is supplying
services, reverse charge mechanism shall apply and he shall be liable to pay
GST. The Central Board of Indirect taxes and Customs has issued a list of goods
and services where this mechanism shall apply.
Despite the current jumble, it is projected that
the procedures shall be made more clear and easier with time and each member of
the economy shall be benefitted by the Goods & Service Tax regime
Original Source: https://swaritadvisors.com/learning/impact-of-gst-on-start-ups/
