The statement “India is the land of unity in diversity” is as old as India itself. Visit any region of India; you would find a large number of people from other states who either got settled there or are on a short-duration visit to the place.
Goods and Services Tax, or GST, redefined the age-old adage. Instead of multiple other State and Center imposed taxes, GST unifies nearly all goods and services into a uniform and unique tax structure that is applicable across the length and breadth of the country.
With massive reforms like this, there are always a few advantages and a few loopholes that need redressal. This article gives you a simplistic overview of GST and shows you its impact on India’s diverse and multifarious businesses.
Taxation Before the Introduction of GST
Before the introduction of GST, India’s 29 states had their own set of taxes, in addition to the taxes imposed by the Central Government.
Central taxes included taxes like Customs Duty, Excise Duty, Service Tax, and Central Sales Tax. State taxes included Sales Tax, Value Added Tax, Luxury Tax, Entertainment Tax, Entry Tax or Octroi, and other ancillary taxes. GST took all of these taxes into its fold and stated a ‘one nation one tax’ regime across all states of India.
The Effect of GST on Indigenous and Local Businesses
Setting Up a Business
Previously, setting up a business required expert understanding of the various state laws and tax frameworks. If you wanted to set up manufacturing facilities at five different states, you would be required to comply with the VAT registration procedure of each State, which was often different.
Hence, the procedure to set up a business was often very confusing. GST, in contrast, is a centralized process, which is simple to understand and easy to follow.
Taxation Based on Turnover
Previously, all businesses required to pay a VAT. For some states, any business with an annual turnover of INR 5 lakhs required to pay VAT. For a few other States, the threshold was INR 10 lakhs.
As a business, keeping up with this massive difference was painstaking. GST made this process easy with a uniform threshold for any business across India.
Under GST, any business with an annual turnover of less than INR 10 lakh does not require to register for or collect GST. Any local or indigenous business, with an annual turnover of <10 lakhs, can reap the benefits of GST by not having to file GST returns.
However, all businesses engaged in the supply of goods or services, need to issue GST invoices for claiming Input Tax Credit or ITC. Knowing about gst invoice format is very important if your business falls under the ambit of GST.
No Discrepancy in Nomenclature
Previously, goods and services fell under different tax brackets and were taxed differently. Understanding the difference was a crucial part of any business. While big businesses had qualified personnel to simplify the process, local businesses had to spend extra money to understand and meet the tax requirements.
GST clubs all good and services under one umbrella. Thus, as an indigenous business, you do not have to rack your brains anymore to understand the nuances of taxation.
Faster Delivery of Goods Across the Country
Previously, goods manufactured in one State had to pay Entry Tax or Octroi to enter another state. As a result, you would see a long queue of goods vehicles at any inter-state border.
With the introduction of GST, this has become a thing of the past. Goods vehicles do not have to wait at borders anymore. A recent report suggests that, as a result of GST, the logistics cost of manufacturers has reduced by 20%, resulting in more savings for businesses.
The Flip Side
Notwithstanding the various advantages of GST, there are a few grey areas. Many business owners feel that the lowered threshold for tax exemption will deal a severe blow to several local and small businesses. Moreover, including both luxury and normal goods in the same bracket will make it hard for local businesses to compete with the big players.
The category-specific uniform gst slabs promise to change the way businesses are taxed. To understand whether the ‘one size fits all’ model satisfies the requirements and necessities of the small businesses of this vast country require more deliberations.