Underscoring the need for tax reforms in India, the GST bill can clearly be termed as a landmark and India's biggest tax reform since independence. The start-ups and SMEs have more reasons to rejoice as this GST structure will provide higher exemptions to new business; businesses with turnover between Rs.10 and 50 lakh will be taxed at lower rates.
GST – A Master stroke to promote Make in India and Ease of Doing BusinessIndian economy is treading its way to become a global manufacturing hub, with all the related schemes and motivation packaged under the ‘Make In India’ campaign. Manufacturing SMEs that form the 90% of the industrial units in India (IBEF data) have been acknowledged by the government as main drivers to realize the ‘Make in India’ vision. The sector is receiving the much needed boost in form of various new government initiatives or revision in existing policies (Eg; Adhaar Memorandum One Page Registration). The Goods and Service Bill, passed recently by Rajaya and Lok Sabha, will impact each and every sector but for manufacturing sector GST will bring in the much needed changes. This move will inevitably prove to promote ease of doing business and business growth for SME players. Embracing GST and its Benefits for SMEs
Tax UniformityGST regime will bring uniformity in the market creating a consolidated national-market. It will eliminate the multiple taxation system followed in the country so far. This will reduce the tax burden on various businesses as all the players will be brought under a uniform tax base, thereby improving growth opportunities for the organized players. In absence of multiple taxes the SMEs will have a smoother and efficient inventory led model to operate, which will greatly enhance the ease of doing business and make them competitive amongst larger players. The one nation one tax system will ultimately boost economic growth with some optimistic estimates suggesting an added 2%.
Improved logistics and fast delivery of servicesAt present, each state levies different taxes on logistics and distribution systems of goods and services. Even the business functions, that the manufacturing SME’s will be benefitted across by the implementation of the GST bill will include logistics and warehousing, raw materials like cement, steel and metals.
Under the GST Bill, no entry tax will be charged for goods manufactured or sold in any part of India. This will prevent stalling of delivery of goods at interstate points and ease the movement of goods. GST Bill as such will help reduce the limitations of the current multiple tax and act as an important tool to combat tax evasion and benefit industries participating in cross-border businesses.
Elimination of distinction between Goods & ServiceUnder GST, there will be no ambiguity between goods and services. This will address the various legal proceedings related to the packaged products. Further, it will streamline the complex tax structure into one tax rate. This will in turn simplify the Invoicing process as there will no longer be a distinction between the material and the service component, thereby reducing malpractices of tax evasion.
Boost to e-commerce: Imperative aid for growth of SMEsThe unified taxation system will strengthen the e-commerce industry with its efficient inventory led model. It will enable seamless movement of goods across inter-state borders enabling better efficacy and stimulating growth of the (e-commerce) sector. It will also remove the surging effect of taxes on customers which will bring adeptness in product costs.
With GST being a tax on transaction the revenue losses for B2B supplies will be reduced as the tax credit distribution mechanism will be clearly outlined under the GST framework. Ultimately, the GST will result in eradicating deep seeded business inefficiencies including; slow transit times, higher manufacturing costs and disruptions in the businesses. It will lead to easier execution and handling of logistics; quicker movement of goods across the country and provide wider availability of input credit. It will help reduce the tax burden on business owners and manufacturers.
ConclusionThe GST regime will consolidate the other-wise multi-level tax structure. The distinction between goods and services will not apply, thereby, ensuring ease in tax compliances by ensuring one unified tax levy. This will increase competition amongst and between the players and reduce the prices further which will be beneficial for the end-consumer. An increase in consumption demand will boost the economic growth.
While there will be ease of doing business and its anticipated macroeconomic effects on economic growth, the GST implementation is vital to accelerate India’s triumphant growth story. However, these provisions need deeper evaluations as further details are awaited.
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