Uniformity in the Tax Structure has been Introduced | 2018

     INTRODUCTION

                                                         One Nation, One Tax

From excise duty to value-added tax (VAT),  the Indian market was burdened with the complexity of the fragmented tax system. Until July 2017, when India adopted the ‘One Nation, One Tax’ or  GST (Goods and Services Tax). Introduction of GST brought with it a series of challenges and opportunities for startups and business owners. Designed to streamline the multiple state and central taxes with a single unified tax structure, gst aimed to minimize the cascading effects of the taxes on the economic market. GST aimed to drive innovation and reshape the economic landscape when it came to tax management by enhancing compliance, increasing transparency and boosting the prospect of doing business in India.

                                                                   Features of GST 

GST eliminates the cascading effects of tax resulting from levying one tax on another. This resulted in the decrease of the prices of overall goods and services. GST operates under a dual structure, comprising the Central GST (CGST) levied by the Central Government and the State GST (SGST) levied by the State Governments. In the case of Inter-state transactions, Integrated GST (IGST) is applicable, which is collected by the Central Government and apportioned to the respective State. Import of goods or services is treated as inter-state supplies and  subjected to IGST  alongside applicable customs duties. GST is also applied on each stage of the supply chain, from the manufacturer to the consumer, allowing seamless flow and reducing tax burden from the end-consumer. Businesses can claim  credit for the tax paid on inputs used in the production or provision of goods and avoid double taxation reducing the overall tax liability. GST is not applied on alcohol for human consumption but is applicable on tobacco and tobacco based products.Small businesses with a turnover below a specified threshold (currently, the threshold is ₹ 20 lakhs for supplier of services/both goods & services and ₹ 40 lakhs for supplier of goods (Intra–State) in India) are exempt from GST. GST's implementation introduced the Goods and Services Tax Network (GSTN), an online portal for registration, return filing, and tax payments which brought more businesses into the formal economy, and curbed tax evasion, fostering a more transparent and efficient tax system. Essential services like healthcare and education were exempted from the tax regime making them more affordable and accessible.

                                                 IMPACT ON BUSINESSES 

Adapting to the sudden change in tax regime came with its own set of challenges for businesses yet saw some startups rise up to fame by capitalizing on the abrupt but favorable change. Traders and manufacturers saw a rise in profit as overall cost of production was reduced to the elimination of cascaded taxes. However, during the initial roll out of GST, small  and medium enterprises (SMEs) found it challenging to adapt to the new tax regime. Requirement for digital compliance, regular return fillings and understanding new tax slabs demanded significant change in accounting practices. Startups, already low on resources, found this task to be daunting. According to a survey conducted by FICCI (Federation of Indian Chambers of Commerce and Industry), nearly 60% businesses faced difficulties in the early GST implementation phase. 

Despite these challenges, easier interstate trade due to a uniform tax across the country allowed businesses to expand their market reach. Startups were able to scale themselves across different states without worrying about different tax regimes in different states that existed before 2017. 

The streamline tax system also boosted foreign investments as GST made it easier to navigate the market for foreign investors. 

Accounting software companies reported a surge in demand for a GST compliant software, an effective tool to help companies navigate through the taxes. Post 2017 timeline showed a significant shift towards digital transactions and e-invoicing as GST made it mandatory for all transactions to be recorded electronically to prevent tax evasion. Startups specializing in fintech such as ClearTax and Tally Solutions have capitalized on this trend, offering solutions for automated GST return filing, invoice generation, and tax reconciliation.

                                                                      The bottom line 

Unified tax regime brought upon by implementation of GST has been a fundamentally important decision that reshaped the business landscape. However challenging in the beginning, businesses demonstrated adaptability and innovation to make full use of the benefits of the new tax regime. Unified tax system not only reduced the tax burden but also opened doors to interstate trade opportunities, boosted compliance and promoted digital transactions. Startup culture saw a significant rise in India due to ease of business, govt support and tech advancements that followed the implementation of GST.  SMEs were able to scale their business and attract investments making GST a catalyst for growth and economic transformation.