India’s tech industry sector has been in conflict since the government announced the creation of a seven-member state ministers panel to review and improve the goods and services tax (GST) system. Let’s see the 5 keys to the impact of GST on the Indian tech industry.
For some time now, the services tax regime has undergone several changes, so implementing correct compliance has been difficult for the competent parts. The ultimate goal, therefore, is to establish a simpler regime, especially for the technology industry, one of the most prominent in India. To do so, the panel will assess whether legal changes should be made or whether the manner in which the assessments are carried out will be different.
As can be inferred, this news has generated uncertainty in the sector. Very little is known, but the industry is confident that the tech industry will benefit from this assessment. Let’s see how.
1. Manufacturing of IT products
Information technology contributes to the Indian economy in a very high proportion, so while the next GST regime may be impactful, the industry has to keep in mind that the sector is experiencing strong growth.
So far, some changes have been reported in the tax rates of IT products and services. For example, basic work tools like copiers and printers will now have a 28% rate compared to the current 18%. Also, the various software services that currently charge 15%, according to the GST will have a value of 18%.
While IT companies must now have the hardware and software available to comply with the GST at the system level, the most important change falls to the accounting and ERP service providers, who will have to upgrade the existing systems to comply with the GST or create a completely new GST software. This last action increases the cost of operations.
2. Purely software services
Faced with these changes, there is a demand from all companies in India for GST software. This becomes a business opportunity for developers to create products that can be launched immediately. And when we talk about all companies, we mean all of them, regardless of the industry.
Such is the case of online casinos, whose notoriety has increased in recent months. It is a promising industry but whose legal status is in a gray scenario. Due to the new GST rules, the industry sees an opportunity to finally achieve the regularization it has fought so hard to obtain.
3. Increase in infrastructure for large or small businesses
Whether it is an established company or a business that has just been born, without distinction they will have to comply with the new requirements of the GST. This involves spending on infrastructure in order to meet the requirements for hardware and software, which was not expected to occur in the short term, especially after having gone through a few months of so much uncertainty due to the coronavirus pandemic.
However, investing in the infrastructure of a company is never negative and this is something that will be recognized with the new regulations. Previously, the tax system did not allow companies to claim credits for maintenance of the work environment since they were classified as aesthetic and unnecessary expenses. Now, with the new GST system, this point is revalued and reimbursements can be claimed for these types of expenses.
4. Export of services
The largest exporter of information technology services in the world is India. For this reason, the taxes that are applied will depend on the recipient, but in most cases, they have a zero rate and in case of paying something, a refund can be made.
This is great news since the services that are most in-demand are software development, maintenance and intermediation.
5. Freelancers offering software services
Of course, there is a sector of work that cannot be ignored, and that is freelancers. Those who offer software services such as application development or website design will now pay 18% in GST, an increase of 3%.
Being a freelancer is not so easy on an economic level, so the sector is quite concerned at a monetary level about this small increase. Faced with this situation, more support for the sector is demanded, since they have a positive impact on the national economy. We hope that the GST panel will clarify in due course how it will affect freelancers.
Will the impact of GST be positive in the end to the tech industry?
Any increase in the payment of taxes is worrying. But it should not always be taken negatively, since in the case of the GST in relation to the technology industry it must be considered that there is a great boost in the sale of software. Therefore, if this good streak continues, the next 3% increase will not be as impressive for small and medium-sized companies, as is estimated at first glance.