Andrew Leahey
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Posts tagged tax
The Benefits Of The New Indian Goods And Services Tax (GST) For Startups

As previously discussed, the Modi government of India is overhauling the country's tax code -- replacing taxes levied on businesses by the central government as well as the individual states with one unified GST.

The GST is a massive tax reform, indeed likely the largest since India gained independent in 1947. India is comprised of 29 states and 7 union territories. Previous to the GST, each state and union territory had an independent tax schema that any would-be national startup would have to contend with. So, placing yourself in the shoes of a national Indian startup, you would need to consider how to pay:

  • Union Government Sales Tax
  • State Government Sales Tax
  • Service Tax
  • Value Added Tax
  • Custom duty & Octroi
  • Excise Duty
  • Anti Dumping Duty
  • Professional Tax
  • Municipal Tax
  • Entertainment Tax
  • Stamp Duty, Transfer Tax
  • Education Cess Surcharge
  • Gift Tax
  • Wealth Tax
  • Toll Tax
  • Swachh Bharat Cess (Service tax)
  • Krishi Kalyan Cess (Service tax)
  • Infrastructure Cess
  • Entry Tax

Under the GST, there is one consolidated tax for state and national governments, akin to that found in France, which would subsume most of the above. The GST will be payable at the point of consumption (point of sale, essentially) and, as previously mentioned, falls along a schedule with brackets ranging from 5% to 28%. 

The GST will assist startups in that it will permit entrepreneurs transacting with multiple states to calculate one tax rate for the State-GST and the Central-GST. The transaction costs for a startup in expanding from a single state to multiple, at least at the tax level, are thus substantially reduced. Additionally, unifying the tax system will permit India to explore new technologies, such as blockchain

India Tax Overhaul

"Now, [the Modi government] is instituting the country’s biggest tax overhaul since independence. On Saturday, a nationwide sales tax replaces the current hodgepodge of business taxes that vary from state to state and are seen as an impediment to growth. It is expected to unify in a single market 1.3 billion people spread over 29 states and seven union territories in India’s $2 trillion economy."

NYTimes

The new tax system, the Goods & Services Tax (GST) is intended to simplify business taxes and spur growth, replacing taxes levied on businesses by the central government as well as the individual states. The GST will be divided in to Central Goods & Services Tax, State Goods & Services Tax and Integrated Goods & Services Tax. A constitutional amendment has already been passed by Parliament and approvals have been ascertained by India's 29 states. The current rate schedule includes 5, 12, 18 and 28% and a host of exceptions, subsuming dozens of brackets in to four. 

Ahead of the roll out, the Indian government developed a technology portal, the GST Network, which is intended to allow business owners to register their companies and pay their taxes online. While the system and the portal is not without its detractors, it does appear to have had at least some positive economic effect. Hyundai and Nissan have announced a decrease in automobile prices to pass on savings under the GST -- 5.9% and 3%, respectively. 

Update 2:43PM: There is a video session in which the Revenue Secretary, Ministry of Finance, Government of India answers questions regarding the GST roll out.