The enactment of the GST in April 2017 will enable businesses to enjoy free and easier movements across state borders and be more competitive internationally. Union Minister Arun Jaitley is in the process of introducing a comprehensive GST roadmap through the GST Council that will pave the way for changes in the manner businesses operate.
What are the taxes that GST will replace?
Business will be more competitive with the reduction in the number of hidden taxes and duties. All indirect taxes including Service tax, VAT, Krishi Kalyan Cess, Excise, Octroi, and Luxury Tax will be replaced by a single GST across India. Under GST there will be CGST (Central Goods and Service tax) and SGST (State Goods and Service tax) for intra-state sales and IGST (Integrated Goods and Service tax) for interstate sales. Let us see how the taxes will work under the new GST regime with an example:
Let us say an advertising company in Bangalore provides services to a customer in Bangalore for Rs. 1,00,000. Assuming the rate is 18% he will charge 9% CGST and 9% SGST in the invoice.
Here’s a breakup
Charges – 1,00,000
SGST @ 9% – 9000
CGST @ 9% – 9000
Total – 1,18,000
Now, if the same advertising company in Bangalore provides services to a customer in different state, say for instance from Mumbai, then he will charge IGST @18%
Cost – 1,00,000
IGST @ 18% – 18,000
Total – 1,18,000
As you can see from the example, depending on the location of your customer, the taxes will fall under the SGST and CGST or IGST.
What is the advantage of GST over VAT for my business?
By eliminating the tax on tax, your small business can reduce operational costs and increase your business’s profit margin. A reduction of tax by converting from VAT to GST would enable your small business to increase in savings for further business expansion.
How will businesses grow domestically and in the world markets?
With a growth trajectory of 7% for FY 16-17 and FY17-18, there would be a larger number of jobs created across all sectors. The largest gainers and job providers would from the manufacturing sector as it currently account for 16% of the GDP which would grow to over 20% post GST implementation. Your small business’s transportation time would reduce by 50% at State border check-posts with reduction in sales and entry taxes.
Will GST enable your small business to operate better nationally?
Moving forward GST will enable small businesses the ease of doing business across state borders and consolidate a fragmented Indian market. This helps businesses increase the scale of production, reduce costs and become prepared to sell their goods in international markets. With the introduction of a single market throughout India, your small business can increase dealer incentives and credit and exemptions.
Your small business can now work across borders with ease, reduce transportation time and facilitate better administration through electronic checks and balances. This will help you reduce and improve compliance for your business and enable your business to operate easier both domestically and internationally.