The Benefits Of The New Indian Goods And Services Tax (GST) For Startups

As previously discussed, the Modi government of India is overhauling the country's tax code -- replacing taxes levied on businesses by the central government as well as the individual states with one unified GST.

The GST is a massive tax reform, indeed likely the largest since India gained independent in 1947. India is comprised of 29 states and 7 union territories. Previous to the GST, each state and union territory had an independent tax schema that any would-be national startup would have to contend with. So, placing yourself in the shoes of a national Indian startup, you would need to consider how to pay:

• Union Government Sales Tax
• State Government Sales Tax
• Service Tax
• Value Added Tax
• Custom duty & Octroi
• Excise Duty
• Anti Dumping Duty
• Professional Tax
• Municipal Tax
• Entertainment Tax
• Stamp Duty, Transfer Tax
• Education Cess Surcharge
• Gift Tax
• Wealth Tax
• Toll Tax
• Swachh Bharat Cess (Service tax)
• Krishi Kalyan Cess (Service tax)
• Infrastructure Cess
• Entry Tax

Under the GST, there is one consolidated tax for state and national governments, akin to that found in France, which would subsume most of the above. The GST will be payable at the point of consumption (point of sale, essentially) and, as previously mentioned, falls along a schedule with brackets ranging from 5% to 28%. 

The GST will assist startups in that it will permit entrepreneurs transacting with multiple states to calculate one tax rate for the State-GST and the Central-GST. The transaction costs for a startup in expanding from a single state to multiple, at least at the tax level, are thus substantially reduced. Additionally, unifying the tax system will permit India to explore new technologies, such as blockchain.