The GST transformed India’s indirect taxes. A convoluted tax system hindered the country’s business value chain for years. This intricate tax structure started with manufacturing and went through intermediaries to consumption. The complexity of taxes and regulations made doing business in India challenging.
Before GST, Indian firms faced various challenges. Multiple supply chain taxes made the tax structure complicated. This caused the “tax on tax” domino effect. Overall, taxes raised goods and services prices. As levies increased, Indian products struggled to compete abroad. Tax evasion through indirect taxes harmed government revenue and complicated the tax system.
GST ease of doing business reform resolved these difficulties. It aimed to harmonize taxation in manufacturing, distribution, and consumption. This ambitious effort aimed to simplify indirect taxes and unify and compete with India’s economy. GST was intended to improve the tax system, boost economic growth, eliminate tax evasion, and boost Indian enterprises’ international competitiveness.
In this article, we aim to discuss indirect taxation and how GST would unite and empower the Indian economy to compete globally. GST’s key benefits, consequences on enterprises and startups, and challenges for Indian firms will be discussed. We intend to show GST’s huge impact on India’s ease of doing business and economic impact through this inquiry.
Impact of GST on the Startup Ecosystem
Improving the convenience of conducting business in India was one of the main goals of GST. Tax reform is designed to simplify business. GST facilitated this. India’s growth depends on startups. GST impact on the startup ecosystem benefited and damaged them:
Positive Impact on Startups
Startups and big companies can now compete fairly. Some of them are mentioned below:
Startups rarely have the resources or manpower to follow complex requirements. GST simplifies and lowers costs.
Decreased Burden of Compliance
Startups frequently lack the resources necessary to manage intricate compliance processes. With fewer returns, digital record-keeping, and simplified procedures, GST has reduced the cost of compliance, freeing up startups to concentrate on their main business activities.
Doing Business Is Easy
Improved ease of doing business in India is attracting investors and businesses. Thus, creativity and entrepreneurship have increased nationwide.
Easier Registration Process
GST ease of doing business made the startup registration process simpler. Administrative headaches are decreased when new enterprises register more swiftly and easily, thanks to a uniform system.
Challenges for Startups
The entire GST transition wasn’t easy for entrepreneurs. The GST ease of doing business had some issues:
The GST impact on business compliance was like moving to a new neighborhood. Startups have to learn all the new rules and procedures. This takes time and work.
Imagine that Ravi manages a modest Indian clothing manufacturing firm. Ravi was familiar with state and central taxes before GST. He had to learn GST compliance to adjust to the new tax structure. Ravi worked hard to grasp the new norms, which was like migrating to a new town with different laws.
Cost of Compliance
GST made compliance easier, but it wasn’t free. Startups have to buy and train people on unique software. Small enterprises with minimal resources may struggle with this cost.
Startups often sell services instead of products. GST raised taxes on certain services. This may impact GST impact on the startup ecosystem revenue and pricing.
Consider TechGenius, a software development and IT consultancy firm. They made most of their money selling services. GST raised various service taxes, affecting TechGenius’ pricing approach. They had to adjust their pricing to account for increasing service taxes, which made it harder to stay competitive.
Digital record-keeping and electronic invoicing
GST required firms to keep their records digitally on computers instead of paper. Startups that employed paper struggled with this transformation.
Imagine Delicious Bites, a modest family-owned business with decades-old paper financial records. They had to switch to digital record-keeping and electronic invoicing for GST.
Delicious Bites had to train its team to use accounting software and a computerized record-keeping system, making this shift difficult. A business that has used paper records for years experienced a major transformation.
Image Source: Troubles Associated With GST Implementation
Prominent Benefits of GST (Goods and Services Tax)
GST ease of doing business has many benefits. These include simplifying tax rules, increasing compliance, enhancing economic growth, making business easier, reducing tax evasion, and making Indian enterprises more competitive abroad. Some main GST benefits are:
Elevated Registration Barrier
The earlier tax system required low-turnover businesses to register for and pay service tax, VAT, and other taxes. GST raised the registration barrier, exempting many small enterprises from tax. As administrative and regulatory costs decrease, these enterprises grow.
Under the old VAT system, companies with yearly revenue over Rs. 5 lakh had to pay VAT, but each state had a separate threshold. Service providers with less than Rs. 10 lakh in annual turnover were exempt from service tax.
GST makes a large difference. The registration threshold hike to Rs. 20 lakh has benefited numerous small shops and service providers. This means enterprises with annual income under Rs. 20 lakh no longer need to register for GST. Excise duty is applicable to businesses with a revenue of more than Rs. 1.5 crore.
Composition Scheme Under GST for Small Businesses
The Composition plan was established by the GST impact on business compliance for small taxpayers. Under this arrangement, businesses with turnovers up to a certain amount can choose to pay a fixed percentage of their turnover as tax and have less complicated compliance requirements. This encourages small enterprises to participate in the formal economy by reducing their administrative load and tax burden.
A Composition program is introduced by GST for companies with a turnover of between Rs. 20 lakh and Rs. 75 lakh. Under this arrangement, businesses can simplify their tax compliance by paying a predetermined proportion of their turnover as tax.
Simplified Online Process
GST streamlined return filing, registration, and tax payment. A simple web interface from the Goods and Services Tax Network (GSTN) helps firms manage their tax activities. Startups and small enterprises that previously had to deal with difficult and time-consuming offline procedures will especially benefit from this.
Reduced Number of Compliances
The GST impact on business compliance combined different forms that needed to be filed under the previous tax system into a single form. This streamlines the compliance procedure and lowers the quantity of returns that companies must file.
Businesses, for example, had to file separate returns for service tax, VAT, and excise taxes; under GST, on the other hand, there are around 11 forms total, of which only four are fundamental returns that apply to all taxpayers.
Disadvantages of GST
A few drawbacks exist with GST. These issues must be resolved to ensure that firms can seamlessly adjust to the new tax structure. The following are the drawbacks of GST:
Increased Taxes on SMEs
Businesses with a turnover surpassing Rs. 20 lakh are now required to pay GST, whereas before, only those with a revenue above Rs. 1.5 crore were subject to such taxes.
SMEs with annual revenue up to Rs. 75 lakh may choose the composition plan, which entails paying 1% tax on turnover rather than GST. Choosing this option means losing input tax credit, making it harder.
Rising Software Purchase Expenses
Companies must buy or upgrade GST-compliant software, which raises operating expenses and requires personnel training and software.
Penalties Apply When GST Compliance Is Not Met
SMEs must understand GST’s complexity to issue compliant invoices containing GSTIN, place of supply, and HSN codes.
Increased Operating Expenses
Small businesses will need to train personnel and hire tax specialists to comply with GST, increasing overhead costs.
Getting Used to an Online Tax System
Smaller companies may struggle to convert from paper invoices to online return filing. For instance, the Corner Bookstore, a small, family-owned bookstore, used paper invoicing and bookkeeping for decades. Book sales included rare and ancient editions. GST in India mandated online return submission and digital record-keeping.
One of the challenges would be the transition to digital records. The Corner Bookstore had to switch from paper sales and purchase records to digital ones. This change was especially difficult for the older family members who used manual bookkeeping.
Additionally, since the online tax filings were new to The Corner Bookstore, their workers had to learn how to utilize the GSTN site and file returns electronically, which was new to them. The Corner Bookstore also had some issues integrating the online tax system. Data entry errors, GST forms, and online return accuracy were major problems.
Mid-Year GST Implementation
Businesses had to cope with the old and new tax systems all year because the GST impact on business compliance was implemented midyear. It became confusing and difficult to obey the regulations.
Finally, the Indian GST has simplified business. In July 2015, Australia introduced the GST, a consumption and manufacturing tax. This new tax structure simplifies, boosts the economy, reduces tax cheating, and provides Indian companies with a global edge. The tax system needs reform to be more efficient, transparent, and business-friendly.
Smaller firms benefit from the GST registration threshold increase. Less taxes mean less paperwork and issues. The GST has simplified taxation, corporate legislation, and business in India. Companies must understand and follow GST rules to benefit from it and prevent its downsides. The GST has transformed India’s tax system and made business easier.
What Are Some Of The GST System’s Biggest Benefits?
The GST system increases operational openness. It is imperative to have a unified taxing system in the county, standardizing the entire process. GST also boosts digitalization with seamless online setups.
How Does GST Help The Poor?
GST keeps basic commodities inexpensive for the poor, who spend a lot on food. It helps the needy and makes basic requirements affordable by providing these commodities at lower costs through the public distribution system.
How Has GST Improved Tax-On-Tax?
Under GST, corporations no longer pay tax on top of tax. The GST architecture unites all applicable taxes, saving enterprises money.
What Are The Main Goals Of GST in India?
GST in India aimed to reduce tax evasion and confusion, cascade taxes, reduce corruption, and boost taxpayers.
What Economic Benefits Has GST Brought To India?
GST ease of doing business simplified the tax system, benefited small and medium firms, raised production funding, improved operations across India, and promoted exports by decreasing customs duty.
How Has The Composition Scheme Under GST Helped?
GST’s Composition structure simplifies taxation. This arrangement lets small taxpayers skip complicated GST processes and pay GST at a flat rate based on their turnover.
What Negative Effects Has GST Had On India’s Economy?
GST may increase unemployment, raise prices, and make it harder for firms to manage input tax credits, which could hurt working capital.
How Has GST Affected Indian Goods And Service Taxation?
GST has divided goods and services into five tax slabs from 0% to 28%. This has changed product and service tax rates, affecting consumer spending and government revenue.
How Were Returns Filed Before GST?
Before GST, businesses had to file VAT and service tax returns separately. GST has simplified the procedure, requiring firms to file a single return.
How Does GST Affect India’s Startup Ecosystem For Economic Growth And Innovation?
GST ease of doing business’s favorable influence on the startup environment has spurred entrepreneurship and innovation, boosting India’s economy. Startups create economic growth, and better tax conditions support them.