GST and its Impact on Small Businesses and Startups in India
GST, or Goods and Services Tax, is a huge opportunity for the Indian startup industry. GST is said to be the biggest economic reform in India after 1991. Its impact on the economy is comparable to that of Y2K or introduction of Euro or the demonetisation exercise in India last year. GST will be the catalyst for India Business 2.0 and the impact of GST on startups will be substantial in the days to come.
The overall role of GST, and its impact on small business owners in India is expected to bring in many challenges and remarkable oportunities. To begin with, life for Startups will get more complicated as with other companies too. This is especially true for Startups with more than Rs 20 Lakh annual turnover. They would have to submit details of their sales and purchases every month in prescribed formats to the GSTN, apart from filing specialised returns and annual returns, all electronically. Also, they would need to be at least registered even if they are small in size, else Buyers of their goods or services would no longer do business with them. This is because the Buyers will not be able to get Input Tax Credit (ITC) against GST paid unless supply is from a registered Supplier and their invoices match. . Also, like the UID number for an individual, GSTN registration number (GSTIN) may emerge as the representative number for not just compliance but routine business operations and decisions as well.
So what are the opportunities GST offers for innovative Startups?
GST has a lot in store for the startups of the country. The best way to scope these opportunities is to consider this to be the start of true digitisation in the country, not just in terms of taxes, but also for a digital enterprise. The registration and filing of all important financial transactions every month would make India a hugely data-rich environment, instead of poor availability of data as earlier.
GST for startups: There are a few key areas likely to open up in various
The impact of GST on startups is manifold. To start with, the first set of opportunities would be to enhance ease of use for compliance. It would mean making an organisation digital if it’s not already, as well as make legacy IT systems ready for this new paradigm. Turning a paper-based organisation into a digital one is a huge opportunity for mobile-based billing system providers offering POS solutions. Reconfiguration of IT systems is a whole new business opportunity, though potentially for more established large system integrators.
The other big area of opportunity is the electronic way bill or eWay Bill. The E-way bill is opening ways for India to march into a digital future. While a lot of logistics companies have been preparing for changes in warehousing due to GST, the recent amendments in eWay Bill create a huge scope for new applications to be built from scratch for meeting the compliance needs. Compliance is clearly not just a hygiene factor anymore but a real differentiator, as businesses would get compliance scores, which over a period of time will start contributing to their overall credit scores. Currently, these ratings exist for approximately the top 5% of the 80 lakh taxpayers in India. Imagine the potential of making these ratings available for the rest 95%. Also, continuous tax regulations changes would be an opportunity for firms in the tax domain to try and digitise their knowledge into a product that can be used by millions instead of just the top 500 corporates.
The second set of opportunities for Startups in respect to GST would fall in the ambit of Input Tax Credit processes. This would require tools for matching of invoices between Buyers and Sellers on a continuous basis. Manual invoice reconciliation on a monthly basis will lead to increase in costs of operation as well as lead to a potential loss in the event of mismatch, or worse, to a drop in compliance scores if incorrectly assumed to be matched. Harmonisation of IT systems in different organisations, a plumbing activity to connect different sizes of pipes is another great opportunity.
The third set of opportunities for Startups would be in the area of analytics. As mentioned above, GST catapults Indian business into a data-rich world. Unlike Aadhar which only helps with identification, while financial information remains with banks/ utility companies and other service providers; GSTN can potentially become the one stop shop for all information, whether for historical performance, identity, the spread of business operations, credit/ compliance scores; and future revenue and profit projections. This is clearly an area of major opportunity which will open up once the initial hiccups on compliance and the subsequent teething troubles in getting tax credits are over. Analytics will be a sustainable long-term opportunity, as the underlying data will continue to get richer, broader and deeper, increasing the scope for new product features.
To summarise, while for a lot of small companies GST may sound like the death knell, for many Startups, especially with the technical prowess, processing capability, and the ingenuity of analytics, it could prove to be a goldmine. In a nutshell, GST for startups will bring in a plethora of opportunities.