How GST will reshape or affect Indian startup industry?

Goods and Services Tax


GST, or Goods and Services Tax, is a huge opportunity for the Indian startup industry. It is not without reason that GST is said to be the largest economic reform after 1991. In terms of impact, it is like the Y2K in the developed economies or introduction to Euro replacing many currencies or back home the demonetisation exercise last year which is still very fresh in the minds of most people in India. GST will be the basis of Indian Business 2.0

For starters, life for Startups will get more complicated, as for all other companies. 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 specialised returns and annual returns, all electronically. However, they would need to be certainly registered even if smaller as otherwise, their Buyers of goods or services would no longer do business with them. This is because Buyer may not be able to get Input Tax Credit for taxes paid unless supply is from a registered Supplier and invoices match. And if one is registered, and is paying taxes, to be competitive would need automatically filing returns to get tax rebates. Also, like the UID number for an individual, GSTN registration number may emerge as the representative number for not just compliance but routine business operations and decisions as well. 

So what are the opportunities for the thoughtful Startups?

The best way to scope the opportunities is to consider this to be the start of true digitisation in the country, not just in terms of taxes, but also to make a digital enterprise. The registration and filing of all important financial transactions every month would suddenly make India a hugely data-rich environment, instead of earlier data poor.

There are a few key areas likely to open up in each of these domains.

To start with, the first set of opportunities would enhance ease of use in terms of compliance. Compliance of GST would mean making organisation digital if it’s already not, as well as make legacy IT systems ready for this new paradigm if they are not. Turning a paper-based organisation that’s likely to be an SME into digital is a huge opportunity for mobile-based billing system providers mimicking as POSs. Reconfiguration of IT systems is a whole new business opportunity, though potentially for more established large system integrators. The other big area is the entire electronic way bill. This is a completely new concept. While a lot of logistics companies have been preparing for changes in warehousing due to GST, the eWay Bill recent amendments create a scope for new applications being built from scratch. Both these are areas for getting compliance in place. Compliance is clearly not just a hygiene anymore but a real differentiator, as the businesses would get compliance scores, which over a period of time will start contributing credit scores. Ratings exist for maybe top 5% of 80 lakh taxpayers in India. Imagine the potential of availability of ratings for the rest 95%. Also, making available requisite tax regulation changes on a continuous basis would be an opportunity for the tax domain firms to try and digitise their knowledge into a product that can be used for millions instead of top 500 corporates. 

The second set of opportunities for Startups in revelation to GST would fall between Input Tax Credit process. This would require tools for matching of invoices between Buyers and Sellers on a continuous basis. Doing it monthly will lead to increase in costs of operation as well as lead to a potential loss in the event of non-matching, or worse drop in compliance scores if incorrectly assumed to be matched. Unfortunately, most organisations are internally consistent, this requires external consistency to be built in too. Harmonisation of IT systems in different organisations, a sort of 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 is with banks/ utility companies, other service providers, GSTN can potentially become one stop shop for all the information, whether a historical performance, identity, the spread of business operations, credit/ compliance scores and potential future revenue and profit projections. This is clearly an area of major opportunities which will open up once the initial hiccups on compliance and the subsequent teething troubles in getting tax credits are over. Analytics will be the sustainable long-term opportunity, as the underlying data will continue to get richer, broader and deeper, increasing the scope for envisioning new product future. 

To summarise, while for a lot of small companies GST may sound death knell, for the Startups, especially with the technical prowess, processing capability and the ingenuity of analytics, it could prove to be a goldmine.