What Are The Advantages And Disadvantages Of Gst On Startups?

By Author: Mohit Yadev
Total Articles: 74
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Positive Impact
i) Simpler taxation
Different taxes in different states were a complex and burdensome process. Now
when all indirect taxes are subsumed into one single tax, tax calculations will
become simple with less paperwork. Startups related to software industry will be
largely benefited from single rate of tax since in present scenario VAT, service tax
and excise, all the 3 or at least first two are applied on software products or service.
ii) Common registration
Unlike before where they had to register again and again for different taxes or
different states, Startups now have to register only once on GST network and
they can do business in any part of India without any hassle. This will make
whole India, a common market for startups and pave ways for expansion of their
business.
iii) Higher threshold limit
Threshold limit of service tax is 10 lakhs while the threshold limit of VAT varies
from 5 lakhs to 20 lakhs in different states. Startups will be eligible for higher
threshold limit of 20 lakhs (10 lakhs in case of North ...
... East states). Also startups
whose annual turnover is less than 50 lakhs can opt for composition levy at a
lower rate.
iv) Reduced logistics cost
GST might prove to be a much needed boon to e-commerce websites. According
to CRISIL report, GST will reduce logistics cost by 20% helping in reducing the
cost of e-commerce startups. Reduction in logistics cost will also lead to more
business for logistics companies.
v) Improvement in Logistics efficiency
According to Vijay Shekhar Sharma, Founder Paytm “Due to complexities of
entry tax and other processes, customers from certain states could not order some
items from the online shopping destinations.” Seamless movement of goods in a
common market will help startups in delivering goods early to customers since
state border checks used to delay the movement of goods from one state to
another. This will also bring down the inventory and storage cost of startups.
vi) Transparency and reduced compliance cost
With introduction of GST, the overall compliance cost is going to be reduced
since now there is only one tax and provisions related to act to comply with. GST
network will also ensure transparency in calculation of taxes and input tax credit.
Negative impact
i) Not a single rate of taxation
India has opted for dual model of GST due to which we have C-GST and S-GST
for intrastate transactions and I-GST for interstate transactions. Many critics
argue that these three are nothing but the new names for Central excise/service
tax, VAT and CST.
ii) Increase in tax rate for service providing startups
Startups who are engaged in providing services only presently had to pay service
tax only at the rate of 15%. However after the introduction of GST with an
expected rate of 18%, there will be an increase of 3% in tax rate for such startups.
This is one major disadvantage of GST for Indian startups since majority of Indian
startups are engaged in services sector. With introduction of GST, they have to
increase prices to compensate such increase in tax since they can’t afford to absorb
more losses.
iii) Exclusion of certain taxes
GST will not be the only indirect tax that a startup has to pay. Apart from GST,
Startups will have to pay custom duty on imports since Custom duty is kept out of
preview of GST. Further electricity, real estate etc. have been excluded from GST
which may lead to a mangled Indian version of GST.
iv) Frequency of filing of return
The model GST guidelines state that e-commerce startups will have to file quarterly
as well as monthly returns on GST network. Further they will also have to
collect taxes from sales made on their portal .This will lead to increase in
documentation and adscenerioministrative cost for such start-ups.
v) Cross set off of levy is not allowed
In proposed GST, the input credit of C-GST cannot be set off against S-GST and
vice versa. While in present system set off of excise duty and service tax is
allowed.
I hope that you got your answer.
For more details,you can refer to my research paper here GST Return In India.