StartUps from ecommerce to service companies are all set to benefit from the Goods and Services Tax coming into effect. As an important growth engine, this clarification on indirect taxes (which include excise, value added taxes and others) will go a long way in streamlining their operations, lift doubts for marketplaces vs product manufacturers and bring in simplicity. “This is a very very welcome for the industry. Specially I understand because I also belong to the manufacturing sector and we go through many tax regime, various tax levies both in state and central. A single most important thing personally for me and the industry would really welcome is Uniform Tax,” says Uma Reddy of Hi Tech transformers.
The objective of GST is to simplify and streamline the indirect tax regime in the country. It is a single comprehensive tax regime that will be applicable across all states in India on the sale, manufacture and consumption of goods and services. A uniform same tax regulation will apply across different states, e-commerce players and other startups that fall under the purview, they will not have to struggle with layered tax structures of different states. This is a big plus point for stability of doing business.
GST will help create a single unified market across India and allow free movement and supply of goods in every part of the country. It will also eliminate the cascading effect of taxes on customers which will bring efficiency in product costs
As India’s startup scene evaluates and experiments with new models of business and commerce, there have been several issues being raised by government authorities putting them at loggerheads. Some of this challenges will be a thing of the past with GST coming into play. “This will help us to focus on our core business rather than worrying too much about is it fine to start my own business in another place only to avoid certain taxes and more cost competitiveness. We would appreciate if this idea starts off,” Reddy explains.
The case of Amazon, Flipkart and other market places is now well documented. Some of the e-commerce startups have even stopped operations in Uttar Pradesh due to objections raised by VAT authorities. Karnataka tax authorities raised concerns about alleged tax evasion by Amazon India. This had led to questions being raised about why no VAT was being paid by Amazon and its sellers (where most sellers stock their goods in Amazon’s warehouse) for operating from the company’s warehousing facilities on the outskirts of Bangalore.
In an article for the Economic Times, Flipkart’s Sachin Bansal says “we are unable to supply goods worth more than Rs 5,000 to UP because our customers have to go to a tax office and complete paperwork. We are unable to keep goods from our 90,000 suppliers in our warehouses across Karnataka due to double taxation. We often face confiscation of goods and cash in Kerala because of their approach to tax domicile, which conflicts with supplying states. With GST, all of this will be history.”
Better Business Environment
In order to build a more conducive business environment, and for ease of doing business, the government has been progressively pushing for the Government of India recently launched the Startup India campaign. With GST in place could more be on the anvil? Manufacturing companies hope so. “This not only help us figure out other taxes in other countries like entry tax, Octroi and all these which you always needed to worry about, either in departure material and also procurement when you send it to another country,” explains Reddy.
Buttercups Founder, Arpita Ganesh says it’s about time GST came into the picture. Being in the garment manufacturing side of things, she asserts “different taxation and different logistics were making it hard,” but is quick to add that “it’s too early to comment on how affective or how bad or good it turns out to be. I think it’s a great starting to centralise this but would rather wait for more info to come in light and how it’s going to be beneficial for us.”
What’s clear is that startups are here to stay and drive the new economy. For long it was assumed GST was about brick and mortar businesses but no longer. It is an important issue with respect to the new age manufacturers and how their perceive an expansion across India. For growth and businesses to sustain, the tax laws should work hand-in-hand with the businesses so as to benefit the economy and society at large.
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