Seen as one of the biggest tax reforms post independence in 1947, the Goods and Services Tax (GST) is set to bring forth unprecedented transformation of the Indian economy. There is a lot of conjecture around whether our markets are strong enough to sustain the impact of a radical change of this magnitude, even when the country is reeling from the after effects of demonetization.
But I strongly feel GST will prove to be a strong enabler for the startup ecosystem by providing a streamlined and effective tax collection process and remove the biggest bane of the of the manufacturing industry.
A few details on what GST is:
GST is one unified indirect tax on the supply of goods and services, right from the manufacturer to the consumer.
Credits for input tax paid at each stage will be available in the subsequent stage of value addition, making GST a tax levied essentially on value addition at each stage.
It will consolidate a wide gamut of indirect taxes like VAT, Service Tax, Central Excise, Octroi or Entry Tax into one unified tax.
The tax will be levied simultaneously by the State and Centre across the value chain
The Indian startup community stands to gain considerably post the implementation of GST. And these gains will not just be limited to the manufacturing segment. Poised at the precipice of disruptive growth and development, let us understand how these young Indian ventures are going to be benefited from GST.
Doing Business Made Easy
The implementation of GST is going to eradicate VAT, Sales Tax etc. Until now, every new business needed to knock on the multiple doors of the Sales Tax department for their VAT registration. Businesses operating in multiple states have to persevere their way through a host of different procedures, guidelines and fee structures. However, with the uniformity that the consolidated GST is set to bring in the economy, aspiring entrepreneurs will find it easier to not only start their business, but also grow it across different cities and states.
Startup Wave flowing to tier-II and beyond
With GST streamlining the tax system, India will become one seamless consolidated market. The big league manufacturers would no longer need to limit sourcing their ancillary products from their local markets, which they had to do to limit the various state taxes. They will see merit in reaching out to the millions of micro and small enterprises thriving in the tier 2 and beyond cities which have perfected their ability to keep the prices of their commodities at modest levels by managing at very low cost outlays. This will provide the much needed impetus to the ‘Make in India’ initiative in remote cities, and these cities will see an upsurge in the manufacturing startups, integrating Bharat with India.
Boost to Digital India
The roll out of GST will see a nation-wide need for a digital solution to manage the books of accounts, as calculating GST manually will be a challenging and time consuming task and might lead to errors. Startups in the IT and tech domain have an opportunity to cash on by providing customized solutions to MSMEs, who have resisted the move to digitization due to the heavy initial investment. With the micro and small enterprises obligated to deploy technology to enable computation of GST and to imbibe the GST policy overhauls, it will give an incremental boost to the Digital India campaign. The investment in technology will lead to process-level efficiencies, cost reductions and increased growth prospects.
Financial Inclusion
In the long run, GST is set to enable financial inclusion in the economy. With the MSME and Startup community migrating towards digital book-keeping and optimizing existing processes, they would be better predisposed towards fulfilling the eligibility criteria for credit facilities. Furthermore, FinTech organizations will find have easy access to the young and fast-growing ventures digitally, and extend them the line of credit needed to establish and grow their businesses. Although this may not be the immediate outcome achieved by GST, however, to know that we are covering the essential ground work for a spectacularly digital and streamlined India, surely seems like a compelling achievement to persevere for.
The GST regime does bring up the issue of compliances to new procedures. There is likely to be some increase in compliance costs. Exempt enterprises may have increased sales tax burden. But these are minor hardships that these enterprises shall easily bear in time and then we will witness the true long term benefits of GST.
Notwithstanding speculations and the initial teething problems, GST appears like a win-win situation promising radical reforms, GDP growth, reduced costs and a streamlined economy, and these are the cardinal elements required to lift the spirits of and empower the Indian Entrepreneur.
(The author is the co-founder and MD of Aye Finance, that that specializes in micro-loans)
