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GST: A Solution or Problem for SME’s and Start-ups

SME's and start-ups of diversified industries have positive as well as negative impact with the launch of GST in the long run.
BY Akshay Arora
Feature Writer, BusinessEx
Jul 12,2017

The emergence of the Goods and Service Tax (GST) took place on 1st July 2017 in India. PM Atal Bihari Vajpayee conceptualised GST with an aim to implement in India for economic growth but its implementation took place after 17 years. GST justifies as a very significant step in the field of indirect tax reforms in India.

What is GST and its Salient Features?

With the boom in businesses and start-up in India, Government is launching various policies and reforms to have sustainable growth in the economy. One of the biggest reforms recently implemented is GST, with an aim to amalgamate a large number of central and state taxes into a single tax and to mitigate the double taxation effect from the economy.

GST will bring simplified tax structure and effective governance will mean making India an attractive destination for doing business. It would be applicable to the supply of Goods and Services, as against the present concept of the tax on the manufacture of goods or on the sale of goods or on the provision of services. It allows full tax credit from inputs and capital goods on procurement which can later be set off against the GST output liability.

It is a dual based tax so the central government will levy CGST and state government will levy SGST. Various central taxes that will be subsumed are Central Excise Duty, Additional Excise Duty, Service Tax, Additional Customs Duty, Special Additional Duty and Central Sales tax. State taxes that will be subsumed within the GST are VAT, entertainment tax, entry tax, and luxury tax, tax on betting and gambling.

What is the Impact of GST on SMEs and Start-ups?

A simpler way to register a business:

No more running for start-ups, to get registered for excise, vat and service tax. Now the government has made the entire process of registering a business simpler with its online services, from the beginning stage of registration to filing returns and payment of GST tax.

As per the researched data, the beginning of registration date of 25th June 2017 almost 1.60 lakh applications has been received for fresh registration from the online portal, from which 53,000 have been registered successfully with details of business and rest are in process.

A Benefit for Logistics Sector:

GST is benefitting the Indian Logistics sector the most with as much as 20% reduction in cost. Logistics business players in the country maintained multiple warehouses for the inter-state transaction to save on CST and state entry taxes levied by the government. After GST launch various shortcomings of the sector are to be in the past story as India becomes one single market where movement of goods across states is free. This will bring about merging of warehouses across the country and mega logistic hubs could be formed, also huge investments in infrastructure could be seen, 100% FDI is permitted.

Tax Burden Reduction:

As per the current VAT structure, businesses having a turnover of more than Rs 5lakh has to get VAT registration and pay the required fees. GST bring this threshold to Rs 20lakh and in some specific states, it is Rs 10lakh thus exempting many small businesses including start-ups. GST also has a composition scheme of lower taxes for small businesses with turnover between 20 to 50lakh though its optional.

No more Differentiation in Goods and Services:

After the launch of GST, now there is no more ambiguity between goods and services. Simplification will be there in various legal proceedings related to the packaged products. This will help in reducing tax evasion, as there will be no longer distinction between services and goods.

Expert Speaks

Srividya Kannan, Founder, Director Avaali Solutions Pvt Ltd. quoted, Businesses are yet to get fully ready, though work is taking place at a frenetic pace to ensure readiness. For enterprises, this also means strategizing and consolidating their supply chain for lowering overall costs and maximising overall benefit. In the next few months, we will definitely see a lot of initial ruffles, similar to what happened with demonetization. Understanding and fully complying with the new policy requires training for personnel and ensuring process readiness in addition to technology and supply chain readiness. It would be interesting to see how the anti-profiteering laws would get implemented especially in the context that GST would have an impact on various business processes of an enterprise and determine all tax benefits could be an arduous task. Again, a filing of close to three or four returns per state per month would mean an immense amount of paperwork and related processes. These and several other change management issues will take the time to settle in before the real benefits of GST can kick in.

Gaurav Aggarwal,Director ofLasonsIndia Pvt Ltd. quoted, "The implementation of GST is good in the long run. It's extremely beneficial to the interstate transactions and makes them easy, swift and eliminates the disadvantage that we used to face earlier.
The best part is the equality of competitiveness! It brings the entire economy on the same page and hence offers a better platform to SMEs and LSEs.
The tariff on essentials like Shampoo, Soaps etc is 28% - which is quite a bit for the middle class, as these items do not belong to the luxury section anymore.
As far as the entire initiative is concerned, there is ease of applicability and understandable for the masses."


GST implementation will impact on SMEs of each sector will vary. This emergence of new tax regime will create a benefit for some sectors and have a negative impact on some sectors. Although, it is already depicting its usefulness in Logistics sector with 20% reduction in cost it may also have a negative effect on other sectors. GST is implemented with an aim to enhance SMEs growth in Indian industries with its policies in the long term. No conclusion is justified yet as only time will tell whether GST benefits business and countrys economic growth or not.

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