While a large number of small and medium businesses are still stuck in the GST limbo, new technology startups have happily embraced India's largest tax reform since independence, thanks to their digital intensive business models.
The startup community, in general, has hailed the single tax structure of the GST. The fact that they do not have to go through multiple registrations and multiple acts in different states has come as a welcome change for these companies. However, the transition had its own challenges and there remains a few grey areas that these companies want the government to address.
With less than 12 hours left before India's historic migration to the GST, some of the key operational issues that impact the vendors, distributors and service providers are yet to be answered.
One of the major issues for companies would be managing final pricing of goods or services with the introduction of input tax credit. “They know the rates at which they should be selling, but then what about the margins at the distributor or retailer levels. Those have to be reworked. With higher availability of credit, how is the cost or profit being impacted?" asked Archit Gupta, founder and chief executive officer of ClearTax, a Bengaluru-based startup that assists in filing income tax returns online.
“It will be interesting to see how companies are going to price their products,” he said. This is a major challenge since the law has a provision for anti-profiteering, which says that if you stand to benefit because of the GST, then you have to pass on those to the final consumer. There needs to be more clarity on how the businesses can go ahead with regards to such issues.
Place of supply rules for services companies is another area that requires attention. "Clarity on this will determine whether a service has been provided on an interstate or intrastate basis, which in turn will determine whether the Integrated GST will apply,” said Harshvardhan Lunia, co-founder and chief executive officer at Lendingkart Technologies, a start-up that offers loans to small and medium enterprises.
Another major issue is the treatment of cases where the billing address is different from the shipping address. "Since most companies have, so far configured their Enterprise Resource Planning (ERP) programs to incorporate the GST as a destination-based tax, there is no clarity yet in the rules as to what happens if the destination of the goods or services is different from where the bill has to be made,” he added.
According to technology startup entrepreneurs, a lot of confusions still exist among businesses across the country. Most of these confusions have emerged from India's long-standing history of not being a tax compliant nation. Over the years, while most of the larger firms could not escape the tax department scrutiny, the smaller firms had, to a large extent, managed tax evasions. "This is no longer a viable option because the larger companies are demanding GST compliance from smaller vendors so that the former can apply for tax credits,” said Manish Kumar, founder and CEO of Kredx, an online invoice discounting platform.
In this backdrop, it is imperative that the government steps up its efforts to educate and create more awareness among people and businesses. "It is not just enough to make a product but also equip people to use the product. In case of the GST, the hesitation arises just from confusions," said Kumar.
He added that the transitional period, which could vary from two to six months, will create a lot of chaos in the short term, creating a huge working capital demand. "This is because most of the companies have delayed their payments due to prevailing confusions. Hence, the payments, which usually happen over a period of 30 to 60 days, might be extended further.” On the greener side, these credit-related issues have created a business opportunity for firms like Kredx.
That said, most of the startups are backing the Centre for adhering to the July 1 deadline. By sticking to the deadline, the government has taken a startup approach towards GST implementation—to regularly improvise the product post launch, rather than further delaying the roll out.
