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This is how Goods & Services Bill can influence startups

This is how Goods & Services Bill can influence startups

Though GST will bring big enterprises & startups at par, it will also cause startups to come under the tax net

New Delhi- Oct 31, 2016. Rednewswire/-

At present, the proposed Goods & Services (GST) Bill is stuck in the Rajya Sabha. Though it has undergone impasses, there is a strong possibility that it will soon become a law. It is the very first time in India, that a law will bring changes into the rigid taxation system. The new law will affect all business including startups.

India is today converting into an ocean of startups. The highest number of startups belong to the IT industry. A report released by NASSCOM says that, in the number of startups, India ranks 4th worldwide with over 3,100 startups. It also says that by 2020, the country will have 11,500 startups. However, 85 percent of these startups fail due to shortage of funds and other reasons. Hence, a brand new tax regime can further disturb the startup arena.

Changes foreseen

The GST Bill is expected to bring changes in the sale, manufacture and consumption of goods and services in the country. The law will substitute the different taxes charged by State and Central government separately. The tax will be collected in each level based on the tax credit system which will allow one to claim taxes paid in other states. Registered business will be able to avail tax credit in accordance to the amount of GST they paid in other states as part of their purchase of goods and services. All goods and services will be taxed at a uniform rate throughout the supply chain until they reach the customer.

Advantages of GST for startups

The GST bill will eliminate the need of paying double taxation and will improve collection of taxes in the country. Experts believe that the new taxation system will help businesses to save on overall taxes and withdraw the complexities of taxes businesses have to pay at each level as part of their day to day business activities. They suggest that GST can prevent tax evasion.

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Today in India, big enterprises “stock transfer” goods to different states because they have the required infrastructure and logistics for this. Subsequently, they escape from paying taxes levied on inter-state transfer of goods. Whereas, startups and small businesses do not have the infrastructure for carrying out stock transfer so they receive goods through inter state sales paying Central sales taxation. However GST will enable startups and small businesses come at par with big enterprises as the latter has to pay taxes on stock transfers.

A study conducted by Deskera, a business software provider, says that GST would ameliorate the efficiency and  competitiveness of startups while reducing the surging effect of the present taxation system. It will also mitigate the conformation cost incurred by the government and narrowing the scope of a black economy. This will further ensure economical development.

Disadvantages of GST

Some startups think that the proposed GST is not beneficial. According to them, the equal treatment of big enterprises and startups removes the security that the latter earlier enjoyed. The proposed Goods and Service Bill reduces the exemption of taxes for enterprises. Under the current taxation system, a business unit having a turnover less than 1.5 crore is exempted from paying any duty. However, the new GST bill lowers the limit to around 25 lakh. This will cause a good number of startups to pay taxes.

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Dennis Jesudasan, a businessman from Kerala says, “I didn’t come within the tax ambit earlier, but with this policy, I would have to bear the added financial burden. My business may not continue to be as profitable as before. In the worst case, I may have to think of other options”.

Overall Picture

Looking at both the positives and negatives, the proposed GST will require every business unit to pay taxes making them more tax compliant and hence removing discretionary tax exemptions in India. But, the GST will put some extra burden on new startups who have not been properly established. Business units will have to make changes in their accounting software to generate invoices as per the new system.

The GST will bring in radical changes to the society and business ecosystem. A slight change in the taxation system can effect the whole structure of the economy. All business unit especially startups should be ready to comply with the changes. They must be familiar with the taxes need to be paid, tariffs, amount of tax and its calculation method. Foreseeing the domino affect it can bring in, GST should be brought up in a phased fashion.

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