How will India’s tax reform affect long-standing SME’s?
Joining a large number of countries, India has finally adopted the Goods and Services Tax (GST) on the 1 July after 10 years of deliberations. Consumers are now informed of any taxes upfront, rather than additional taxes which weren’t accounted for previously.
To support this further, the government aims to develop a new anti-profiteering authority, which will stop companies from passing on this increase in tax to consumers, who no doubt will be worried by the changes.
Although this should make the movement of goods and services increasingly smooth, there could also be potential complexities with stock levels for SME’s, with four tax brackets – 5 percent, 12 percent, 18 percent and 28 percent. Butter has risen from 5.66 percent to the GST rate of 12 percent. The tax percentage for footwear has also slightly increased, alongside other essential items.
However, there will be nil GST rates for fresh fruit and vegetables, a number of non-branded items, meat and a number of health products.
By adopting 'one nation, one tax', the eradication of a complicated and somewhat fragmented tax structure should provide a number of benefits to businesses and consumers, with greater transparancy on both sides, alongside a reduction in litigation cases. The system will provide increased efficiencies, with businesses required to file tax returns each month.
India aims to therefore boost the economic market, alongside industries such as manufacturing and logistics, further attracting new business into the region.
It is widely reported that the move to GST will also provide increase employment levels in technology, accountancy and reporting sectors, in order to transfer over to the new tax system and are in compliance with government rulings.
However, with the move towards an increased digitised way of working, many SME’s will be uncertain as to how to implement the new tax structure, or the long-term effects it will have, in addition to being without the required resources. This will therefore cause smaller businesses to struggle short term.
Nonetheless, it is a step forward for India’s businesses, with the possibility of increased opportunities of employment and increased transparency with pricing structures throughout.