In April, the rule regarding payment of service tax was changed. Earlier, payment had to be made when the money was collected. Now, payment of the tax has to be done on billing. In India, it typically takes 3-4 months for most payments to come in, and there is always some issue with some bills – write-offs, changes, etc. Taken together, this hurts cashflows for companies, and especially smaller, growing businesses, because money now needs to be paid to the government upfront rather than when the real cash comes in.
I am not a finance or taxation expert, but as a business owner, I can definitely saw this is not a good step for business. Over the past few years, paperwork has increased manifold with all the government rules and regulations, and now the cashflow is being hit. I am surprised that this issue has not been raised more vigorously by business owners and industry associations.
I hope someone sees the light. India’s growth needs to come from entrepreneurs, and rules like this make it much harder for entrepreneurs to succeed.