GST, or the Goods and Services Tax is being projected as the “single biggest and boldest indirect tax reform in India since Independence”. GST is a comprehensive value added tax destined to substitute all indirect taxes levied on production, sale, and consumption of products and services (with few exemptions in certain sectors), and change the rhetoric on business transactions in future. It is hoped that it will make tax return filing a less cumbersome process.
Economists predict that GST will provide a never-seen before boost to the country’s economy as India continues to attract more Foreign Direct Investments (FDIs). While a lot has been said about GST’s positive impact on business perhaps the biggest beneficiary of this tax reform will be the MSME sector, especially start-ups and entrepreneurs.
Existing Current Tax System
GST arose out of the complexity in the current tax systems. It is an attempt to provide a seamless transfer of goods and services across the entire country, replace multiple indirect taxes imposed by the Centre and states and simplify the existing tax structure, streamline compliance and logistical complexity issues for inter-state transactions and make ease of doing business in India a reality.
GST was introduced in the Lok Sabha on December 19, 2014 by Finance Minister Arun Jaitley. The Rajya Sabha passed the Bill on August 3, 2016 and the amended Bill was passed by the Lok Sabha on August 8, 2016. GST is expected to be executed and implemented by April 1, 2017.
Worldwide, more than 140 countries have already implemented GST. Majority of these countries adhere to the concept of single GST. The standard GST rates in most countries vary between 15-20%. While it is expected that will create a uniform pan-India taxation rate, it is still a long way to go before this goal is achieved.
In India, under the proposed dual system of C-GST and S-GST, both Center and states will continue levying taxes on goods and services at a mutually agreed upon rate, and businesses will need to pay taxes to separate accounts. However, to make life easier for SMEs, the dual control of Centre and the states has been done away with for entities which have an annual turnover of Rs. 1.5 crore.
Deciphering the Reform Potential
We have seen in the past that whenever the tax structure changes, it affects the small and medium size businesses the most. In terms of tax cost involved, they may have to meet additional compliance in registration and filing of returns after GST is implemented. The most versatile segment of SMEs & MSMEs, retailers, distributors, and manufacturers are under-served till date due to the lack of affordable IT infrastructure. Integrated business software solutions companies of repute, like Marg Compusoft can provide customized business solutions for small and medium sized businesses and take care of all their accounting, inventory, and business-related needs in a cost-effective manner.
When it comes to the GST system, if your business earning is not input taxed, it will likely become taxable. Most small and medium sized businesses generally have GST-taxable income. Hence, it is important for them to charge GST on their overall income in order to claim back the tax they will be paying on business expenses. Computerization will play vital role in implementing GST on the ground. SMEs and MSMEs need to be focused on building a paperless, computerized infrastructure in their own interest.
The GST transition will be smooth and easier if companies understand the importance of integrating technology and software solutions into their businesses. As SMEs and MSMEs face new challenges of increase in compliance costs and alignment of accounting and taxation systems with the new processes, it is pertinent that they embrace IT into the workflow.
The Road Ahead
With the Bill already ratified by Parliament, implementation is now just a matter of time. Educating and establishing clarity on the GST regime is the need of the hour. It is critical that enterprises understand the changing business dynamics with GST and analyze their growth potential under the new system.
SME markets are betting big hoping GST would provide the much-awaited and much-needed push to their trade from the micro perspective. Surely, GST would place MSMEs on a level-playing field with larger enterprises by doing away with tax differentiation and uniform tax on stock transfers. Once the system is in place, the long-term benefits and hurdles will become clear, slowly and gradually.
As an organization specializing in business-oriented software, Marg Compusoft aims to transform the way customers manage business accounting in near future and educate them on reaping maximum benefits from the inventory-led model that will emerge with the successful implementation of GST. Marg Compusoft’s recent multi-city road show reaching out to small and medium size businesses with ground-level awareness on GST by was an effort in this direction.
Marg Compusoft Pvt. Ltd
(Marg Compusoft Pvt Ltd, a leading comprehensive business solution software provider)