With the rollout of GST from the 1st July, the country will move towards a new tax regime which will have an impact on all the industries and businesses. This move will ensure that the consumers benefit in the long run due to the reduction in overall tax burden. Similarly, for businesses, it means a reduction in the multiple points of taxation and a simple regime with fewer rate of taxes. GST will have a significant impact on the way business operates. It will lead to transparency and ensure that the process of doing business becomes much easier. There could be a few challenges in the short term, but it will have a positive impact in the long run. It will help eliminate the cascading impact of tax and bring down the cost of goods. Here are a few terms you need to understand before you implement GST into your business:
- Input tax credit: The input tax credit is an important mechanism of GST. It means that when manufacturers or service providers pay tax on the output, they can reduce the liability of the tax payable by the amount already paid on inputs. This will ensure that the average burden of tax comes down, which will reduce the prices of goods.
- Requisite for the credit: The input tax credit will be available to the recipient only if the details provided by the supplier match with the amount claimed by the recipient. This way, the supplier as well as the manufacturer will become GST compliant and in turn, help check tax evasion.
- One Nation, One Tax: Currently, there are different tax rates for different goods and services. Under GST, the country will follow one nation, one tax which will allow companies to set up warehouses and optimize costs.
- Reduction in operational costs: The operational costs, which include transportation costs will reduce and the overall cost of running a business will come down.
- Increased stability: Implementation of GST will bring in a stable regime. It will have real value in the area of tax governance and will bring a rule based, transparent tax system.
- Boost exports: There will be no tax payable on exports since they will be treated as zero rated supplies. The exporters can claim input tax credit and this will bring the Indian goods into the global markets.
- Ease in doing business: As mentioned above, GST will help in the process of doing business with a simple tax regime, reduced multiple taxes and no multiple record keeping for a variety of taxes. All the interaction will be done through the GSTN portal, hence there will be less public interface between the taxpayer and the tax administration.
However, there will be a few challenges in the short term. The transition could disrupt the working cycle in the initial phase and lead to trouble with the input tax credit on the inventory. In the long run, GST will deliver significant benefits to the nation, in terms of reduced tax evasion, increased transparency and the ease of doing business.