Whether or not the Goods and Services Tax (GST) can yield gains for small businesses has been an extensively debated topic since the roll-out of the tax regime in 2017. Now, 7 years on, GST still remains a significant concern for small businesses, with mixed reactions to how the tax regime impacts MSMEs. One positive outcome is the tax neutrality that small-scale entrepreneurs benefit from. However, the reduction in duty exemptions is a major concern. For example, a manufacturer with an annual turnover below ₹1.5 crore might face new challenges under GST, despite the exemption offered by the previous excise tax system.
The introduction of the Goods and Services Tax (GST), a single-window taxation system, aimed to alleviate the tax burden on small businesses. With over 63 million MSMEs in India, contributing to 30% of GDP and more than 40% of exports, the sector plays a crucial role in the economy. As one of the top employment-generating sectors, MSMEs remain vital in the post-GST landscape, shaping the country’s industrial output and export revenues. While the tax regime is undoubtedly beneficial in terms of boosting ease of doing business and simplifying compliance, let’s explore some of the other aspects of GST gains from which small businesses can benefit.
Filing GST as mandated can provide several benefits of gst for small businesses. GST benefits for MSMEs include the facilitation of formalisation and credit access, resulting in easy access to a range of government benefits. This can help them better manage working capital and focus on the long-term growth of their operations. Some of the aspects of GST gains where small businesses can benefit are outlined below:
The government’s objective with the GST roll-out was to make the tax regime comprehensive and transparent to reduce tax evasion and errors in compliance. The GST regime has replaced multiple taxes and offline registration processes, leading to a more transparent system with reduced corruption. The move to an online, paperless system has simplified tax filing and reduced the chances of corruption that plagued the old tax regime, making it beneficial for both the authorities and the taxpayers.
One of the objectives of introducing the GST system was to reduce compliance costs for businesses. This has been particularly beneficial for MSMES. By consolidating various taxes into a single system, GST has simplified tax reporting for small businesses. Although the new system can be a little complex for them to navigate initially, it eliminates the need to deal with multiple tax agencies. The government has also facilitated easy onboarding through a digital process.
The GST bill assures that no entry tax is required when a firm or organisation manufactures or sells a product in India. The most significant issue for small businesses is bureaucratic intricacy, which occurs when socioeconomic and political barriers obstruct and waste real time, money, and human resources. Owing to GST, small business owners benefit from a centralised registration. This aids small businesses not only in terms of audience diversification, but also in terms of market competition. Convergence of commodities and services would be another major benefit. Small businesses will have a clear picture of how taxation will affect them now that the distinction between goods and services has been removed.
Export-oriented businesses will benefit significantly from GST gains. When products are exported, IGST paid on them is automatically returned, similar to how drawback claims are handled. Service exporters will benefit as well, because their supply (both inbound and outbound) will be zero-rated. Exporters have the option of exporting without paying tax and receiving an Input Tax Credit (ITC) refund, or exporting after paying Integrated Tax and receiving a refund. The IGST paid during export will be returned automatically, with no need for the exporter to file a refund claim.
Today’s entrepreneurs face significant financing constraints. Working capital is frequently stifled by tax and refund claims. The ITC process under GST is designed to prevent this from happening. Furthermore, under GST, the refund processes are totally computerised and automated, with fixed timetables and online credit of refunds in the claimant’s bank account. These procedures will greatly increase firm cash flow and prevent working capital from becoming encumbered with Tax Authorities.
GST gains assist businesses in ensuring the best prices for their products and services. Prices will no longer include taxes, putting enterprises in a much better position to provide competitive prices and attract clients.
Periodical compliances such as monthly returns, reconciliation of TCS (tax collected at source) amounts, and so on are weighed on MSMEs operating through e-commerce operators. Furthermore, because MSMEs may be performing compliances manually without the assistance of technology, it presents difficulties in performing reconciliations, keeping track of TCS collected and paid, credit reconciliations, and so on.
Someone who has only seen/accessed the internet through a mobile phone may struggle to understand the processes and website complexity. Unfortunately, the GST process, including navigating the website and completing returns on a regular basis, is highly time-consuming, which discourages small and medium-sized sellers from starting or expanding their operations through e-commerce platforms. As a result, it would be prudent for the government to streamline the entire GST process and website in the interest of all suppliers, both online and offline.
With improved GST compliance, MSMEs can reap significant benefits by accessing GST loan or business loans that are issued against proof of GST filing. This eases and speeds up the loan decisioning process, giving MSMEs easy access to the formal credit they need.
Because the GST regime does not distinguish between items produced by small businesses and goods produced by multinational corporations, small businesses will be forced to compete with huge corporations. The cost of products will be greater for businesses that deal with direct supply to end customers. Another major concern is the lowering threshold, the exemption ceiling in GST has been drastically reduced, giving large businesses a significant advantage over small businesses.
However, the exclusion of certain products from GST harms small businesses in the fertiliser business and others. There hasn’t been a clear debate on the 1% origin tax, as well as the increased cash flow issues associated with GST payable on stock transfers. Without a doubt, GST gains will have a transformative impact on India’s indirect tax administration, affecting all types of businesses.
However, regular GST fillings and compliance can be an easier way for MSMEs to procure additional financing through business loans. Availing GST loans in India are gaining significant ground and many small business owners are using this to procure short-term loans or working capital loans. Kinara Capital offers a variety of business loans to MSMEs in a simple and secure manner. Small business owners can access fast and flexible loans ranging from 1 lakh to 30 lakhs digitally through the myKinara app or visit the nearest branch, both of which offer services in preferred vernacular language
1. Who is eligible for a GST loan?
Businesses that can show proof of GST filing at the time of applying for a loan are eligible for GST loan, considering other eligibility criteria of the lender are also met.
2. What is the fees for MSME GST registration?
GST registration is free for MSMEs. The government doesn’t charge any fees for it.
3. Who is exempt from GST?
Small business owners whose annual turnover does not exceed the prescribed threshold of Rs. 40 lakh are exempted from GST registration.
4. Is GST beneficial for small business?
GST has been beneficial for small businesses as it has simplified tax compliance and eased the burden of paying multiple taxes at different touchpoints.
5. Can small businesses get GST refunds?
Small businesses are eligible for a GST refund if they have paid excess tax, exported goods or services, made zero-rated supplies, claimed lower income than presumptive income, or have unutilized input tax credit.
