GST: Impact on SMBs, technology services and startups

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GST: Impact on SMBs, technology services and startups:-

  • The Lok Sabha has passed the Goods and Services Tax (GST) bill and the rates for goods and services have been determined, clearing the path for the most significant tax reform in post-independence India.
  • GST has been hailed as a much-needed overhaul of the indirect tax system, many small and medium sized businesses (SMBs) across sectors – services and product alike – are wary of its impact on them. It is but natural for there to be teething issues, but once the dust settles down, there will be significant benefits from GST that will fuel the growth of businesses and the Indian economy.

Ease of Doing Business:-

  • The primary intent of rolling out GST is to promote ease of doing business. This will be possible through the unified tax system under GST which does away with the multiple taxes that businesses are currently subjected to. In the new tax regime, businesses need to be worried about only one tax, namely GST.

There are three types of GST:-

1) SGST or State GST – part of GST collected by states for the movement of goods and services within a state

2) CGST or Central GST – part of GST collected by the center for the movement of goods and services within a state

3) IGST or Integrated GST – GST collected by the center when goods and services cross state or national boundaries. States will work with the center to reconcile taxes due to them for such movement of goods and services.

  • GST is a destination based tax system, meaning that the tax will be determined based on where the consumption of goods or services will take place. For technology service providers, this means that customers will be billed or taxed based on the destination at which their service has been consumed.

Lower Taxes:-

  • Any business providing products and services is subjected to both VAT and Service Tax. This adds to the burden of tax compliance while also increasing cost of doing business in the form of higher taxes. GST does away with the distinction between products and services. This means that tax calculation for such businesses will be much simpler and in many cases lead to lowering of taxes.
  • GST provides for a unique tax reconciliation mechanism for businesses to reduce their taxes. A business will be able to avail of tax credit only if its supplier has uploaded the corresponding invoice to the GSTN. This will have a cascading benefit for the entire supply chain in terms of improved transparency and lower taxes.

Digitization and Business Opportunities:-

  • Under GST, businesses need to upload their invoices to the GSTN (GST Network) on a regular basis. In addition, businesses need to upload and download various forms from the GSTN thrice a month, every month. This design of GST makes it necessary for businesses to employ technology to run their business and accounting processes.

Compliance and Higher Operational Efficiencies:-

  • Businesses will need to organize themselves better, as compliance requirements under GST are well-defined and require almost real-time compliance. Most businesses will move to increased automation of their accounting processes increasing operational efficiencies. Indian SMBs will now have to ensure that their processes, including accounting and data management are efficiently organized so as to be able to file a compliance reports three times a month.