A Common Tax regime- Just what INDIA 2020 needs?

The government’s latest proposal for a GST (Goods and Services Tax) may soon become a reality, now that the 122 Amendment Bill, 2014, has been passed. In effect, the GST will make sure that India becomes on big common market where taxation is concerned. At first sight, it will eliminate many complications that create loopholes to allow tax evasion on a mass scale.

The GST (Goods and Services Tax) will in effect, replace all the taxes- state and central, on manufacture, sale and consumption of goods and services throughout India. It will be a comprehensive indirect tax, and will be calculated as a single rate on all goods and services till they reach the end consumer. With state and central distinction done away, the taxation will be done by a single authority.

The good news is that under this new law, export will be zero rated and imports will be levied same tax as internal business.
Many industry associations and players see the levying of GST as a significant step forward in the simplification of indirect taxation in India. The positives are many- it will eliminate double taxation, ensure easier administration and simpler enforcement. It would also help to reduce defaulters, and with easier calculations, bring down the total taxation on goods, which currently works out to between 25% and 30%. In addition, since it would concurrently be levied by state as well as central government, the complications arising out of a political situation can be almost done away with. The law will be implemented as applicable from June 1, 2016.

Accepting the national significance of having a general tax, Dr Naushad Forbes, President, CII, 2016-17, added, “ GST is India’s most significant tax reform in decades. GST, when implemented, is expected to usher in a harmonised national market of goods and services and shall lead to a simplified, assesse-friendly tax administration system. Once implemented, it will subsume all of the country’s central and state level duties and taxes, thus making the country a national market and contribute significantly to the growth of the economy.”

The proposed Bill would get the tax rates down, thus helping the industry, but with simplification and the increase in tax elasticity, the government hopes to get at least 500% more payers within the tax net. Speaking on the passing of the GST Bill, Rushabh Shah, President, TAIT (Trade Association of Information Technology ), said, “Total tax on software is 15% service tax and 5.5% vat totalling about 21.24% on base rate. This will come down to 18% GST. Software is taxed twice as service tax and VAT. Now it will be single tax. We feel that GST will simplify compliance and will free up resources to concentrate on business expansion. Though, implementation will be done only after things are in place, companies need to start planning for future.”

Industry associations such as Nasscom have actively appreciated the passing of the bill and also recommended that a collaborative approach between Government and Industry collaborative approach will serve to address implementation and administrative challenges, and help establish a clearer and more beneficial law. This will actually be the crucial part- an industry-government partnership, if the objective of this tax bill is to be met.

Voicing his opinion on the GST constitutional amendment bill, Mr. R Chandrashekhar, President, NASSCOM stated that, “The passage of the amendment bill will unarguably usher in the most impactful tax reform this country has seen. The services industry at large was administered under a single authority in the centre under the Service Tax regime. The simplicity and certainty that it offered needs to be emulated in the GST law that States and Centre adopt subsequently. The new tax regime should also be future ready and cater to the needs of the emerging digital economy in the country.”
This should help the technology sector by increasing its competitiveness and obtain clarity on the electronic download classifications etc.

However, for newer business systems like ecommerce and Internet apps, there will certainly be newer challenges to the implementation. For ecommerce markets, the tax collection at source mandate could be extremely damaging, and might even make online marketplaces economically unviable.

Speaking on the new paradigm of business on the internet, Mr. Sanjeev Bikhchandani, Chairman, NASSCOM Internet Council and Executive Vice Chairman, Infoedge (that runs naukri.com) , said “The GST regime should adapt to these changes with an eye on the future. However, apprehensions prevail on the administrative requirements that could potentially render internet enabled businesses uncompetitive. We believe this is not the intent of the Government and will work closely with Revenue officials towards enabling a simple and enabling GST regime for all.”

There are also issues that pertain to more judicial processes. One of them being the fact that companies that operate across the country will need to register their brands in 37 jurisdictions – across 29 States and 7 Union territories along with the centre. Also, there will need to be clarity on valuation of goods and services. Beyond these, the export of goods and services could face issues due to complexity in Billing and invoicing requirements. Moreover, the upfront exemptions that SEZs got till now, will not exist anymore.

These are some concerns that the technology industry has pointed out, but mitigation of these challenges will be the way forward for the GST implementation.

Added Mr. CP Gurnani, Chairman NASSCOM and CEO & MD, Tech Mahindra, “We congratulate the government and all parties for collaborating together and ensuring passage of the GST Amendment Bill. The industry has been discussing challenges related to multiple registrations in each state and associated complexities that may arise in the GST regime. We are confident that given the Government’s commitment to ease of doing business, we will be able to address the industry concerns in totality.”

Other industry comments are still rolling in. Said Anil Khera, CEO, Videocon d2h, said, “GST is a welcome step. It will unify the indirect tax administration in India and help the country in two ways. First it will simplify and make it easy for the consumers to understand. Second it will significantly improve the ease of doing business in India. Together it will help us, a DTH operator, to be more efficient in our business.”

With startups playing such a significant role in the Indian industry space today, the impact on startups is important. However, the industry seems satisfied for now. Says Vipin Pathak, CEO & Cofounder, Care24, on impact of the home healthcare startups,” At last like the European Common Market, India has got now one market and one tax regime which will infuse into our economy the much needed buoyancy and help significantly. For the startups and healthcare service providers it is a shot in their arms. They will see a lower tax burden and higher incentives to expand their operations across the country. A new dawn has been born to increase our growth , job opportunities, efficiency and promptitude in service delivery. For the healthcare industry here is a golden opportunity to take their services far and wide and offer medicines and medications at affordable cost. Our industry wholeheartedly welcomes GST. I would say that we have to celebrate August 3, 2016 as the Indian (Economic) Renaissance or Rejuvenation Day.”

Minesh Shah, Orsuq Solutions Pvt Ltd feels that GST is a great landmark reform for Startup as it will minimise the tax formalities of states and central government, especially in some of intrastate transactions. Where in past there was a lot of ambiguity about the tax structure, specially at a state level. Since GST has come into the picture it will be a very fair platform for all the start ups wherein they would be able to concentrate more on business and business expansion in every state of the country which in past had made it difficult due to the multiple taxation. “It will have a huge impact in the start up eco system. Well this will also allow the startup eco system to source the products from across the country which was being difficult in the past when the bill was not introduced and lot of states were losing business and so were the startup. With this reform it will be a win win situation for everyone like SME, Market players and consumers.”

But there are expectations as well. “Start ups are the main reason today who is been generating a lot of employment and are helping the SME to sell their product be it online or offline which itself contributes to the GDP growth of our country. We expect the government to give some tax benefit and provide subsidy to the start up and the investors that would be a great help,” he added.
Abhimayu Bhosale, Co-Founder, CEO, Live Health said,””I think the biggest difference GST is getting is the ease of registration process for Taxes. We no longer have to worry for service tax registration, Vat registration, TDS and other registration. Usually startups have limited time and HR. At least 4-6 days a month are spent on calculating and paying taxes which is a lot of time valuable tome spent. So that’ll be reduced marginally and doing business will be more simpler for companies to raise and calculate taxes. GST will also give higher exemptions for taxes. Like for vat it’s 10L instead of 5L currently.”

Said, Dhruvil Sanghvi, CEO and Co-founder, LogiNext,”“Introducing GST is a huge step from government’s side as majority of the countries across the globe already had similar structures and it was long time due for India. The ease of doing business, especially for transportation and manufacturing sectors will increase by a huge factor.

For e-commerce and retail sectors, we had gathered location data over last 3 years and it clearly showed that more than 10% of the time in trade and transportation was spent at state/city borders due to various tax checks and penalty payments/collections. After GST, this time and cost will be reduced and our optimization algorithms will be able to suggest better routes for our users. In addition to that, the warehouse planning and positioning will also become much better as there won’t be a need to have many small warehouses across the states. This will unify the warehousing loads and reduce overall cost and time in end-to-end supply chain.”

Even with varying opinions, it is clear that with GST, technology companies will benefit since now they can look forward to deeper penetration of digital services and IT as well as mobility tools will be better utilised as enterprise aids.

As Sanghvi said,”From technology point of view, there are so many planning and analytics tools available globally which Indian enterprises were not able to use due to a complex tax structure. Companies will now be able to use more advanced tools and technologies to improve their internal operations and trade cycles across the country will become shorter and faster.”