Will GST Implementation have the intended effect on the digital India economy?
We are moving towards a connected world, changes now ripples across much faster and this influences the financial wellbeing of economy also.
Taxation is one such factor that’s needs to be addressed because of these rapid changes. Also, every country have to align its tax structure in a standardized way to smoothly conduct business in there and across the border.
GST is aimed at simplification of tax structure and do away with various heads. Its aim is to present a uniform, converged tax regime.
In India, we cannot stay isolated and are very much influenced by these changes across the world. The implementation of GST has been in discussion for at least last eight years and seriously so, for the last two years.
In India many producing states are to lose sizable tax revenue by the nature of proposals outlined within the draft bill and alternatively, it offered substantial gains for consuming states. Especially this disparity has developed into a bottle neck in discussions and in the implementation of GST here.
Anyhow, Government of India after hectic negotiations, included time bound compensation packages for the producing states and at last the bill got cleared at Rajya sabha. Later in Lok sabha too.
On digital products, these have evolved into a sizable revenue stream at places like European union.
Having implemented a consumption tax model and at a high level of around 27%, no wonder digital downloads to European union has become a significant source of tax revenue there.
In Australia, digital service vendors need to add-up additional GST upon retail sales. The complaint there is that the local vendors there are at a disadvantage in comparison with providers operating from abroad as, providers from overseas was not liable to pay tax, until now.
As per the newly formulated policy there, overseas service providers are to be brought into tax net and this includes supplies of intangible services also.
In Australia, this is scheduled to come into force by mid 2017.
In the same line, the CBDT panel in India has proposed 6 to 8 percent tax on some digital products and this is bound to reflect upon the proposed list and ecommerce in general, especially those operations centered around the items included in the list.
This tax is termed as equalization levy.
The taxable intangible services in India could include site hosting services, payment collection, website designing, paid email service, paid blogs, ads in radio, TV etc.
These proposals will also affect Google, Facebook and many others operating in similar category. Businesses which rely on these channels may have to scoop out more to reach out.
While, in parallel, government is going in a big way to promote digital payments thus; more transactions can easily be brought under tax scanner. This will also reduce the black payments and help to curtail the flow of black money.
Many small and medium players do not use ERP systems for their financial management and usually e-disconnected as of now. ERP not only offers a better managerial arena, also, when the cash less digital economy is fully ushered in, an ERP support for operations is going to make life much easier for the management.
GST is a major step put forward to usher in many sea changes in our economy.