Come July 1, 2017 the Indian government will switch over to the new tax regime the Goods and Service Tax (GST). GST is a value added Tax (VAT) which will be a comprehensive indirect levy on manufacture, sale and consumption of goods and servers across the country. It will replace all indirect taxes levied at both the central and state level. With the implementation of GST the following taxes will no longer be applied:
- Excise Duty
- Excise Duty levied under the Medicinal and Toiletries Preparation Act
- Additional duties of Excise
- Surcharges and Cesses
- Service Tax
- Countervailing Duty
- Special Additional Duty of Customers
- Central Sales Tax
- Entry tax and Octroi
- Purchase Tax
- Luxury Tax
- Entertainment Tax
- Taxes on Advertisement
- Taxes on lottery, betting and gambling
- State Cesses and Surcharges
Salient Features of GST
- All forms of "supply" of goods and services such as sale, transfer, barter, exchange, license, rental, lease and import of services of goods and services made for a consideration will attract CGST (central levy) and SGST (state levy).
- As GST will apply on "supply", the erstwhile taxable heads such as "manufacture", "sale" and "provision of services", among others, will lose relevance.
- The liability to pay CGST or SGST will arise at the time of supply.
- GST will be applicable whether a transaction is "intra-state" or "inter-state", separate provisions exist to help an assessee determine the place of supply for goods and services.
- States will draft their own State GST based on the draft model law with minor variations.
- GST would be payable on "transaction value", being the price actually paid or payable, and said to include all expenses in relation to sale, such as packing and commission.
Impact of GST on SMEs and Startups
GST is expected to impact SMEs and startups positively. Some of the ways GST will benefit SMEs include:
- Ease of starting business:A business having operations across different state needs VAT registration. Different tax rules in different states only add to the complications and incur high procedural fees. GST enables centralized registration that will make starting a business easier and the consequent expansion an added advantage for SMEs.
- Reduction of tax burden:As per the current tax structure, businesses with a turnover of more than rupees 5 lakh need to pay a VAT registration fee. Under GST the limit is increased to twenty five lakh.
- Improved logistics and faster delivery of services:No entry tax will be charged for goods manufactured or sold in any part of India. As a result, delivery of goods at interstate points and toll check posts will be expedited. According to an estimate by CRISIL, the logistics cost for manufacturers of bulk goods will get reduced significantly—by about 20%. This is expected to boost ecommerce across the nation.
- Elimination of distinction between goods and services:GST ensures that there is no ambiguity between goods and services. This will simplify various legal proceedings related to the packaged products. As a result, there will no longer be a distinction between the material and the service component.
Automation Key to GST Implementation
While there are many benefits to GST, businesses will need to automate their processes as there are aspects in the GST such as input credit, twin rates, destination system, exclusion, etc. that need automation for proper implementation. Factoring them manually would be difficult. Companies which already have ERP setups will need to modify them, and those that don’t will have to procure software that is GST compliant.
In such a scenario, enterprises and businesses, particularly the first timers, would need to ensure that their ERP software has two important things:
- It is cloud-based
- It is GST-compliant.
A GST-compliant Cloud ERP will ensure many things: calculation of taxes, application of tariffs, and compliance. Automation will also remove human error—since the small mistake may result in an inflated tax bill. However, equipped with cloud-based GST-ready ERP, businesses can handle GST requirements and may even end up saving on taxes.
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