GST – Here's How It Will Help Your Startup

The long awaited constitutional amendment to Goods and Services Tax (GST) at last observes the light of the day. The GST bill has finally been passed in the Rajya Sabha and the nation is hoping to usher in this revolutionary move in the way indirect taxes are calculated. It is esteemed to benefit the businesses of all sizes and nature. Startups too can expect to look forward to better circumstances ahead. These are analysis of the impact of GST on startups which shows that they will stand to enjoy the benefits of GST.

Ease of starting business

Any new business needs a VAT registration from sales tax department. A business operating in many states has to confront a lot of issues regarding the different procedures and expenses in each state. GST will achieve a consistency in process GST and centralized registration that will make starting a business and branching out in other states easier.

Higher threshold for registration

As per current VAT structure, any business with a turnover of more than Rs. 5 lakhs needs to get VAT registration and pay VAT which is different in different states. Under GST this threshold is Rs. 20 lakhs, therefore, exempting many small businesses including startups. GST has a scheme of lower taxes for small independent businesses with turnover between Rs. 20 to 50 lakhs however it is discretionary. It is called the composition scheme. This will bring a reprieve from tax burdens to newly established businesses.

Simple registration, easy to scale up

VAT registration from the sales tax department is imperative to start a new business. But, a business operating in different states has to follow various rules and pay distinctive sorts of fees in each state.

GST will bring consistency, improvement and a centralized registration for companies. business people need to get just a single license and they are all set to do business in multiple states, as long as they pay the taxes. This will pave a way to for startups to launch, expand and scale their business easily.

Greater efficiencies in logistics

The seamless movement of goods and a common market across the nation will bring about more prominent efficiencies in logistics, which is currently a major challenge for startups for two reasons. One, state border checks delay the movement of goods transport vehicles, resulting in delayed deliveries and improved product cost to the end-customer.

Second, since the big companies have a well-defined infrastructure and logistic facilities in place, they tend to stock – exchange their goods to other states and manage to avoid paying taxes on interstate commercial transport. In actuality, startups neither have logistics nor funds to stock-transfer. Along these, they get goods through interstate sales, on which they are subject to pay central sales tax.

GST will dispose off such inefficiencies, making an interstate movement of goods less expensive and less tedious. As there will be an uninterrupted movement in the supply chain, the expense related to maintaining high stocks will likewise be diminished.

As per CRISIL analysis, GST can diminish the logistics cost for the companies producing non-bulk goods by as much as 20%. This includes all goods other than the primary bulk commodities transported by railways – iron ore, coal, steel, cement, fertilizers, food grains and so forth. The GST Council is yet to come to a consensus regarding the rates of GST. The Council has proposed rates such as 5%, 12%, 18% and 28% along with cess in some cases, with the lower rates falling on essential items and higher tariff for sin and luxury goods.

Essential services such as education services, health, and other essential service are exempted from GST while the rate of 28% shall be imposed on some specific items like Luxury cars etc. Till the time these nitty-gritties are worked out, the true effect of GST is hard to assess on various sectors.

Goods and service tax or GST will be one tax to subsume all taxes. It will bring in “One nation one tax” regime in the Union government’s slogan for GST.